SUMMONS CANNOT BE ISSUED TO CUSTOMER OF REGISTERED PERSON TO STOP PAYMENTS TO THE REGISTERED PERSON

[Mr. M. GOVINDARAJAN]

Section 70(1) of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) gives power to the proper officer to summon persons to give evidence and produce documents.  The said section provides that the proper officer under this Act shall have power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry in the same manner, as provided in the case of a civil court under the provisions of the Code of Civil Procedure, 1908.

Section 70(2) of the Act provides that every such inquiry referred to in sub-section (1) shall be deemed to be a ‘judicial proceedings’ within the meaning of section 193 and section 228 of the Indian Penal Code.

In M/S. SRI SAI BALAJI ASSOCIATES VERSUS THE STATE OF ANDHRA PRADESH - 2023 (3) TMI 625 - ANDHRA PRADESH HIGH COURT, the third respondent in the present writ petition issued  a notice to Sterlight Technologies Limited, Vishakapatnam, the customer of the writ petitioner.  In the notice it was directed - ‘in view of the above explanation you are hereby requested stop all further payments from here onwards until the clearance is given by the undersigned’.  The said notice was issued under Section 70(1) of the Act.

The petitioner challenged the said order before the High Court. The petitioner contended the following before the High Court-

• In terms of Section 70(1) of the Act the third respondent has power to summon any person whose attendance is considered necessary either for giving evidence or producing a document or any other thing in any inquiry.
• The said power has not been extended to the third respondent to direct the summoning of a party to stop all further payments, which he ought to receive from the customers.
• The direction contained in such notice is beyond the jurisdiction of the third respondent.

The petitioner prayed the High Court to delete such direction from the impugned notice. 

The Revenue accepted the contention of the petitioner that in a notice issued under section 70(1) of the Act the concerned officer may not have power to issue a direction to stop payment by the summoning party to the assessee.       However the respondent No.3 has such power under Section 83 of the Act.

Section 83(1) of the Act provides that where, after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV, 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 or any person specified in sub-section (1A) of section 122, in such manner as may be prescribed.   Section 83(2) of the Act provides that every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made under sub-section (1).

The High Court considered the submissions made by the parties to the present writ petition.  The High Court analyzed the provisions of Section 70 and 83 of the Act.  The High Court observed that the impugned notice was issued under Section 70(1) of the Act but not under section 83 of the Act.  Section 70(1) of the Act only says that the proper office shall have the power to summon any person whose attendance is necessary either to give evidence or to produce a document or any other thing in the enquiry and nothing more.  Therefore the proper is not having power to issue the notice under Section 70(1) to direct the summoning party to stop payment to the assessee.  This is beyond the scope of Section 70(1) of the Act.

The High Court also observed that under section 83 of the Act if the Commissioner is of the opinion that for the purpose of protecting the Government revenue, he may order for provisional attachment of any property including any bank account belonging to the taxed person or any specified under section 122(1A) of the Act as detailed below-

• A person who supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply.
• A person who issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made there under.
• A person who takes or utilizes input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made there under.
• A person who takes or distributes input tax credit in contravention of section 20, or the rules made there under.

The High Court observed that the impugned notice was issued under section 70(1) of the Act but not in exercise of the power under Section 83.  Therefore the High Court found that it is clear that the third respondent has exceeded his power in directing Sterlight Technologies Limited to sop further payments to the petitioner.  Such a direction is beyond the control of the third respondent.  Therefore the said notice is liable to be set aside to that extent. 

The High Court allowed the writ petition and set aside the impugned order.  The High Court gave liberty to the third respondent to proceed in accordance with law so far as the other part of the notice issued by him under section 70(1) of the Act.