PROVISIONAL ATTACHMENT OF BANK ACCOUNTS ON THE GROUND OF MISCLASSIFICATION OF PRODUCTS – VALID?

[Mr. M. GOVINDARAJAN]

Provisional attachment

Section 83(1)  of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides for attachment of properties of the assessee to protect the interests of the Revenue in case the assessee did not pay the tax with intention to evade the payment of tax.  .  The said section provides that where during the pendency of any proceedings under-

• section 62  - Assessment of non filers of returns; or
• section 63  -  Assessment of unregistered persons; or
• section 64 – Summary assessment in special circumstances; or
• section 67 -  Power of inspection, search or seizure - or
• section 73  - Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any wilful-misstatement or suppression of facts; or
• section 74 - Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilfull-misstatement or suppression of facts.

the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue, it is necessary so to do, he may, by order in writing attach provisionally any property, including bank account, belonging to the taxable person in such manner as may be prescribed.

Every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order.

Section 83 gives powers to the Commissioner to attach any property of the registered person if he is of the opinion if it is necessary so to do.  The said section also includes the provisional attachment of bank account belonging to the taxable person.

Provisional attachment bank accounts

In many of the cases the Department attached the bank accounts belonging to the taxable person provisionally.  Such type of actions lead to much difficulties faced by the registered persons.  Because of this the business cause to be struck and further developments cannot be done.  Many of the High Courts held that attaching the bank accounts belonging to the taxable person amounts to harassment and it should be the last resort.

The main issue to be discussed in this article-

• whether the bank account is to be provisionally attached when there are other type of assets is available?; and
• whether  the bank account is to be provisionally attached for the reasons other than section 62, 63, 64, 67, 73 and 74 ?

with reference to decided case law.

In AJE INDIA PRIVATE LIMITED VERSUS UNION OF INDIA AND ORS. [2020 (12) TMI 1047 - BOMBAY HIGH COURT], the petitioner company is engaging in the business of manufacturing and supply of carbonated fruit drinks such as Big Cola, Big Orange Cola, Big Lemon and similar other products having more than 5% juice in apply drink and 2.5% in respect of lemon drink.  The petitioner classified such goods under Tariff Item No. 2202 99 20 of the Customs Tariff Act, 1975 and specified at Sl. No. 48 under Schedule II as ‘fruit pulp or fruit juice based drinks’ of Notification dated 28.07.2017 taxable @ 12%.  On the said basis of classification the petitioner has been filing GST returns and paying taxes regularly.

During March 2019 the Departmental authorities initiated investigation with regard to the classification of goods.  This investigation was dropped.  The same was revived during January 2020.  Due to COVID no progress was made.  However on 21.09.2020 the officials visited the petitioner’s factory.  The summons was issued for appearance of directors and other authorized representatives.  Statement of one of the foreign directors was recorded in 22.09.2020.

On 19.11.2020 order was issued to the bank to attach three bank accounts of the petitioners provisionally under section 83 of the Central Goods and Services Tax Act, 2017.  The petitioner filed objection on 25.11.2020 on the provisional attachment of their bank accounts.  A personal hearing was granted on 01.12.2020 to the petitioner.  In the personal hearing the officials told the petitioner that the provisional attachment would not be lifted.

Aggrieved against the said decision the present writ petition has been filed before the High Court by the petitioner.  The petitioner submitted the following before the High Court-

• The investigation under section 67 of the Act was initiated against the petitioner on the ground of misclassification of products thereby evading payment of due GST.
• The classification of goods under Tariff item 2202 99 20 is in conformity with the judgment of Supreme Court in M/S. PARLE AGRO (P) LTD. VERSUS COMMISSIONER OF COMMERCIAL TAXES, TRIVANDRUM, M/S. WE SIX TRADERS ETC. ETC. VERSUS COMMERCIAL TAX OFFICER & ANR. AND ASSISTANT COMMISSIONER (ASSESSMENT) & ANR. VERSUS M/S. PARLE AGRO (P) LTD. [2017 (5) TMI 592 - SUPREME COURT]
• In respect of the one of the group companies of the petitioner namely Anutham Exim Private Limited, Commissioner of Customs (Appeals), Kolkata by order dated 08.06.2020.
• The petitioner has complied with the summons issued from time to time and had submitted requisite documents and information.
• The investigation revealed that fruit juice contained in the products of the petitioner was either 5% or more than 5%.

The Department contended the following before the High Court-

• The correct classification is 22012 10 90 attracting 28% of GST and 12% of CESS.
• The investigation revealed that because of misclassification of the products of  the petitioner it has resulted in short payment of tax to the tune of approximately ₹ 33 crores during the period from December 2017 to February 2020.
• The Judgment of the Supreme Court in ‘Parle Agro (P) Limited’ (supra) is not attracted to the present case in that case percentage of fruit juice was above 10% which is not the case in respect of the goods of the petitioner.
• In respect of order of Commissioner (Appeals), Kolkata, the Department has filed appeal against the said order and therefore the said order has no relevance in this case.

The High Court considered the submissions made by the parties to the writ petition.   The High Court analyzed the provisions of section 83, section 67.  The High Court observed that a conjoint reading of the relevant provisions of section 67 and section 83 it would indicate that the proper officer must have reasons to believe that the taxable person ahs suppressed any taxable transactions to evade payment of tax.  In the present case the petitioner had disclosed the details of the goods and had applied the classification which is thought was appropriate.  On the basis the petitioner has filed returns that had been assessed.  It is not the case that the petitioner has defaulted in payment of tax as per its returns or assessment.  The department was of the view that it is a case of misclassification which has led to short payment of tax.

Then the High Court analyzed appeal filed before the Commissioner (Appeals), Customs, Kolkata relied on by the petitioner.  The High Court observed that Anutham Exim Private Limited had imported beverages under the brands of Big Cola, Big Orange, Big Lemon etc. from Bhutan.  The Adjudicating Authority was of the view that the products were classifiable under CTH 2202 10 20 for which tax rate is 28% and cess at 12%.  An appeal was preferred against the order of Adjudicating Authority before Commissioner (Appeals), Kolkata.  The Commissioner (Appeals) held that the carbonate beverages with fruit juice falling under clause (3A) of Regulation 2.3.30 of FSS (Food Products, Standards and Food Additives), Regulations, 2011 and would qualify as fruit juice based drink only and classifiable under Tarrif Item 2202 99 20.

The High Court did not subscribe the contention of the Department that the Department has filed appeal against the order and therefore the said order does not apply to the petitioner in the present case.  It shows completed disregard of the Department to an order of an appellate authority.

The High Court framed a question for decision in this case is – whether on the basis of above facts can it be said to be a case of suppression of any of the provisions of the Act to evade payment of tax?  The answer is in the negative.

The High Court perused the original records of investigation.  The High Court held that merely because there is a proceeding under section 67 would not mean that the recourse to such a drastic power as under section 83 would be automatic consequence, more so when the petitioner has co-operated with the investigation.  The record is silent as to whether any attempt has been made for provisional attachment of any property of the petitioner and instead why the bank accounts should be attached.  Section 83(1) uses the word ‘may’ as the power is discretionary.  When discretion is vested in an authority, such discretion has to be exercised in a just and judicious manner, more so when the power conferred under section 83 admittedly is a very drastic power having serious ramifications.  The High Court further observed that such right would affect property rights of persons as sell as life and liberty under Article 21 of the Constitution of India has to be exercise in a fair and reasonable manner.

Because the Commissioner is conferred with the power of provisional attachment under section 83 it would not ipso facto mean that he can straight away proceed go provisionally attach any property including bank accounts of a taxable person merely on the ground of pendency of proceedings under section 67.  The High Court also observed that the petitioner offered to the Department its land, building and plant and machinery having estimated gross value of approximately ₹ 44 crores to secure the interest of the revenue. 

In such circumstances the High Court was of the view that recourse to section 83 by the department straightaway is not justified.  Such an exercise appears to be harsh and excessive, thus arbitrary. The High Court set aside the impugned order and directed to withdraw the provisional attachment of bank accounts of the petitioner.  However the High Court directed the petitioner to furnish an undertaking before the Court by way of an affidavit that it shall not alienate its land, building, plant and machinery during pendency of the present proceeding.

Conclusion

The provisional attachment of bank accounts cannot be done straightaway.  Classification of goods is to determine the goods under certain classes which attract separate rate of tax.  Wrong classification would not amount to infer the plea of evasion of tax.  Therefore in case of the department investigating on the classification of goods the department is not entitled to attach the bank accounts provisionally.