2021 (9) TMI 1111 - HC - GST

Provisional attachment of Bank Accounts - lack of application of mind - violation of principles of natural justice - mis-classification of goods - HELD THAT - The order of the Commissioner records that pursuant to initiation of investigation under section 67 read with section 74 of the CGST Act, provisional attachment of the petitioner s bank accounts has been made only with the intention to protect the large amount of revenue sought to be evaded by the petitioner on account of willful misclassification of goods - the evidence referred in the impugned order has not been annexed to the reply affidavit and, therefore, it is difficult to accept the version as recorded in such paragraph. Even otherwise, if at all it is a fact that the petitioner has not cooperated with the investigation, that by itself would not preclude the respondents from completing it with promptitude in accordance with law. However, this cannot constitute a valid reason for continuing the orders of provisional attachment. The Commissioner recorded a satisfaction that the present case was a fit case for invocation of section 83 of the CGST Act. It was found that as per the balance-sheet for the year 2019-20, the petitioner had declared the value of tangible assets or fixed assets as ₹ 8.53 Cr. approximately. Since the dues were far more than the value of the immoveable property, it was decided to continue attachment of the bank accounts. Mr. Raichandani has contended that the orders of provisional attachment ought to have been lifted bearing in mind the value of the assets and also in view of the law that pre-deposit of 10% is required if an appeal were preferred against the final order. We do not think that at this stage this issue ought to be considered, in view of the order proposed. The grounds on which the judicial review is available are well established. Non-consideration of relevant materials and consideration of extraneous matters together with non-access of the part affected to materials relied on in reaching conclusions, if substantiated, would provide sufficient ground for judicial review. In the present case, the provisional order dated May 21, 2021 is unsustainable - the Commissioner is directed to de novo consider the objection of the petitioner. In the event, the Commissioner refuses to lift the orders of provisional attachment once again, appropriate reasons shall be assigned. - petition allowed.

Summary

Issues Involved:
1. Misclassification of chemical products under GST.
2. Provisional attachment of bank accounts under Section 83 of the CGST Act.
3. Alleged non-cooperation by the petitioner in the investigation.
4. Validity and sufficiency of the reasons for the provisional attachment order.

Issue-wise Detailed Analysis:

1. Misclassification of Chemical Products under GST:
The core issue revolves around the classification of certain chemical products by the petitioner. The petitioner had classified the products under CTH 15162099, attracting a GST rate of 5%. However, the Deputy Commissioner (Anti Evasion) CGST alleged that these products should be classified under CTH 2916, attracting a GST rate of 18%. The respondents claimed a differential duty of ?18,30,87,423/- due to this alleged misclassification. The Court noted that the Commissioner failed to provide detailed reasons or relevant evidence supporting the reclassification under Chapter 2915/2916. The Court emphasized the necessity for a reasoned decision, supported by relevant evidence and legal provisions.

2. Provisional Attachment of Bank Accounts under Section 83 of the CGST Act:
The Commissioner issued orders to provisionally attach the petitioner's bank accounts to protect revenue interests, citing "willful misclassification of goods." The Court found that the Commissioner’s order lacked proper application of mind and breached principles of natural justice. The Court criticized the Commissioner for not considering the petitioner's operational status and GST returns, which indicated ongoing business activities and substantial tax payments. The Court also noted that the Commissioner did not address the petitioner's contention that its factory was operational during the investigation.

3. Alleged Non-cooperation by the Petitioner in the Investigation:
The Commissioner accused the petitioner of non-cooperation, stating that the investigation could not be concluded due to the petitioner's actions. The petitioner refuted this, arguing that they had provided all necessary documents and samples promptly. The Court found the Commissioner’s claim of non-cooperation unsubstantiated and emphasized that the investigation should proceed promptly regardless of the petitioner's alleged non-cooperation. The Court concluded that the alleged non-cooperation did not justify the continuation of the provisional attachment.

4. Validity and Sufficiency of the Reasons for the Provisional Attachment Order:
The Court found several deficiencies in the Commissioner’s order. The Commissioner’s rejection of the Institute of Chemical Technology’s report without a counter expert opinion was deemed inappropriate. The Court highlighted that the Commissioner’s conclusions were not based on scientific evidence or proper reasoning. The Court also noted that the Commissioner’s reliance on the classification practices of other local manufacturers was irrelevant for deciding the petitioner’s case. The Court stressed that the Commissioner must provide clear, reasoned decisions based on applicable law and evidence.

Conclusion:
The Court set aside the Commissioner’s order dated May 21, 2021, and directed a de novo consideration of the petitioner’s objections. The Commissioner was instructed to reassess the provisional attachment order within three weeks, providing appropriate reasons for any decision. The writ petition was allowed to the extent specified, with no costs awarded.