2020 (11) TMI 111 - HC - GST

Release of freezed Bank Accounts of petitioner and family members - Suspension and cancellation of importer exporter code (IEC) Number - Restraint from adopting any coercive measures without issuing show cause notice to compel the petitioner to pay further customs duty and / or goods and services tax (GST) dues - direction to the respondents allowing presence of a lawyer of petitioner s choice during investigation (questioning) of the petitioner. HELD THAT - The property including the bank account liable to or which has been provisionally attached must belong to the taxable person. Taxable person has been defined in section 2(107) of the CGST Act to mean a person who is registered or is liable to be registered under sections 22 or 24 of the CGST Act - Respondent Nos.5 to 7 have explained in their affidavits that the investigation carried out against the petitioner falls within the ambit of sections 67 and 74 of the CGST Act and on satisfaction of the concerned authority provisional attachment orders were issued in the prescribed format. Contention of the petitioner that there was violation of the provisions of section 83 of the CGST Act and no due process was followed while provisionally attaching the bank accounts and the rebuttal contentions of the respondents that there has been due compliance to the statutory requirement of section 83 read with rule 159 may require a detailed examination. However, for the moment we may consider attachment of the bank accounts from the perspective of the taxable person i.e., the petitioner Mr. Siddarth Mandavia and his proprietorship firm M/s. XS Components - there is no allegation or any averment made by the respondents that any money belonging to the petitioner or to his firm have been credited into the joint accounts of the petitioner with his wife or with his minor son or into the account of his wife. As a matter of fact, in paragraph 38 of their first affidavit, respondent Nos.5 to 7 have stated that the reason for attachment of other bank accounts appears to be their link with the petitioner or his PAN. They being not the tax payers in this case, provisional attachment of their bank accounts therefore would not be justified. Liberty may be granted to the petitioner even at this stage to file objection to the provisional attachment and if such an objection is filed, the competent authority may take an appropriate decision thereon after providing an opportunity of hearing to the petitioner. It is trite that when a law requires a thing to be done in a particular manner, it has to be done in that particular manner and recourse to any other manner is necessarily forbidden. Suspension and cancellation of importer exporter code number can be done only under Foreign Trade (Development and Regulation) Act, 1992 by the Director General of Foreign Trade or by his authorized officer for the reasons specified and in the manner provided in section 8 of the said Act. Respondents arrayed in this petition are neither the Director General of Foreign Trade nor his authorized officer - It is interesting to note that on the allegation of blocking of importer exporter code of the petitioner by respondent No.3 made in paragraph 11 and ground No.S of the writ petition, respondents in paragraph 32 of their first affidavit have offered no comment, so also in paragraph 64. If that be the position, blocking of importer exporter code of the petitioner by any authority other than the Director General of Foreign Trade or by his authorized officer under section 8 of the Foreign Trade (Development and Regulation) Act, 1992 would be unauthorized, unwarranted and without jurisdiction. The attached properties are directed to be released - List for further consideration on 15.12.2020.

Summary

Issues Involved:
1. Coercive measures without show cause notice.
2. Freezing of bank accounts.
3. Blocking of Importer Exporter Code.
4. Presence of a lawyer during investigation.

Detailed Analysis:

Coercive Measures Without Show Cause Notice
The petitioner sought a direction to restrain the respondents from adopting coercive measures without issuing a show cause notice to compel the petitioner to pay further customs duty and/or GST dues. The court examined Section 83 of the CGST Act, 2017, which allows provisional attachment of property to protect government revenue during the pendency of certain proceedings. The court noted that there are two preconditions for the Commissioner to exercise jurisdiction under Section 83: (1) pendency of proceedings under specified sections of the CGST Act, and (2) the Commissioner's opinion that provisional attachment is necessary to protect government revenue. The court found that the garnishee notice issued to the petitioner's bank mentioned proceedings under Sections 67 and 74 of the CGST Act, but the manner in which these proceedings were launched was not clear.

Freezing of Bank Accounts
The petitioner requested the unfreezing of 12 bank accounts. The respondents argued that the provisional attachment was necessary to protect government revenue, citing the investigation which suggested that the petitioner had indulged in fraudulent activities, including the utilization of fake input tax credit (ITC) and claiming fraudulent IGST refunds. The court examined Rule 159 of the CGST Rules, which outlines the procedure for provisional attachment of property. The court emphasized that provisional attachment is a serious measure and should not be used punitively. It also noted that the attachment must be periodically reviewed and can be contested by the affected party. The court found that some of the attached accounts were in the names of individuals who were not the taxable persons and had no allegations against them, making the attachment of these accounts unjustified.

Blocking of Importer Exporter Code
The petitioner sought the unblocking of their Importer Exporter Code. The court referred to the Foreign Trade (Development and Regulation) Act, 1992, which governs the issuance, suspension, and cancellation of Importer Exporter Codes. The court noted that only the Director General of Foreign Trade or an authorized officer can suspend or cancel an Importer Exporter Code, and this must be done following due process, including providing a notice and an opportunity for a hearing. The court found that the respondents were neither the Director General of Foreign Trade nor authorized officers and thus had no jurisdiction to block the petitioner's Importer Exporter Code.

Presence of a Lawyer During Investigation
The petitioner also sought permission to have a lawyer present during their investigation. The court did not provide a detailed analysis or ruling on this issue within the provided text.

Interim Orders:
1. The bank account solely in the name of Ms. Mansi Siddharth Mandavia to be unfrozen immediately.
2. Joint accounts in the names of the petitioner and either Mansi Mandavia or Hriaan Siddharth Mandavia to be unfrozen, with a debit freeze on 50% of the amounts.
3. The petitioner may file an objection regarding other accounts within 7 days, and the Principal Additional Director General must decide on the objection within 3 weeks.
4. The blockage of the petitioner's Importer Exporter Code by the respondents to be withdrawn immediately.

Conclusion:
The court provided significant relief to the petitioner by ordering the unfreezing of certain bank accounts and the withdrawal of the blockage of the Importer Exporter Code. It also allowed the petitioner to contest the provisional attachment of other accounts, ensuring that the respondents' actions were subject to judicial scrutiny and due process.