PROVISIONAL ATTACHMENT IN GST TO PROTECT REVENUE IN CERTAIN CASES

[Dr. Sanjiv Agarwal]

Statutory provisions (Section 83)

Prior to amendment by Finance Act, 2021 (Upto 31.12.2021)

(1) Where during the pendency of any proceeding under section 62 or section 63 or section 64 or section 67 or section 73 or section 74, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government 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.

(2) 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).

As amended by Finance Act, 2021 (W.e.f. 01.01.2022)

83 (1) 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.

(2) 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).

Legislative background

Section 83 of CGST Act, 2017 as originally legislated provided that during the pendency of any proceedings under certain sections of the CGST Act, 2017, the Commissioner can by order in writing , attach provisionally any property for a period of one year from the date of such order for provisional attachment.

The Finance Act, 2021 has substituted sub-section (1) of section 83 of CGST Act, 2017 expanding the period of one year with the objective to provide that provisional attachment shall remain valid for the entire period starting from the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV till the expiry of a period of one year from the date of order made thereunder.

This amendment shall be effective from 01.01.2021 vide Notification No. 39/2021-CT dated 21.12.2021.

Effect of amendment

The amendment in 2021 has been made to provide that provisional attachment shall remain valid for the entire period starting from the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV till the expiry of a period of one year from the date of order made thereunder.

A perusal of the above provisions and amendment made by Finance Act, 2021 would reveal that:

1. Prior to amendment

• Provisional attachment could be made where proceedings were pending u/s 62, 63, 64, 67, 73 or 74 of the CGST Act, 2017.
• Attachment could be done to property belonging to the taxable person only.

2. After amendment by Finance Act, 2021

• Provisional attachment could be made where proceedings are pending under any section of Chapter XII, XIII or XV of the CGST Act, 2017
• Provisional attachment shall be valid for entire period starting from initiation of proceedings till the expiry of one year from date of Order
• Property belonging to the taxable person or any person specified in section 122(1A) of the CGST Act can be attached, i.e. person who retains benefit of a specific transaction(s) and at whose instance such transaction is conducted.

Thus, the scope of section 83 for provisional attachment of property has been enlarged by the Finance Act, 2021 w.e.f. 01.01.2022.

Opinion for attachment to be firmed up

According to section 83(1), there must exist an opinion framed by the Commissioner to the effect that it is necessary to provisionally attach the property with the objective of protecting the interest of Government revenue. This framing of opinion is a pre-requisite to provisionally attach any property under section 83. In the other words, the opinion is sine qua non for the attachment order.

To frame such an opinion, there must be reasonable reason to believe that such attachment is necessary and that such opinion should be coming duly from application of mind and supported by the facts of the case, circumstances, evidences on record and conduct of taxpayer.

What can be attached ?

Section 83 provides that any property can be attached which would imply that it can be movable property including goods or any immovable property. The attachment of bank account has been specifically mentioned in the statutory provision itself implying that a bank account can also be attached.

It may be noted that cash in hand is not a bank account. Cash cannot therefore be attached but it can be seized under section 67.

Need for recovery

Provisional attachment of any property can be made to enforce or protect recovery of tax demands under the GST law.

Where the proper officer consider it expedient in the interest of revenue, he may for reasons to be recorded in writing may require the taxable person to pay the demanded amount within a period shorter than 3 months as he may decide.

Section 78 of the CGST Act, 2017, provides that after passing of an order under the Act, the taxable person is required to deposit the amount of demand within 3 months of date of service of such order to him. Further, it provides that in case of failure of taxable person to deposit the amount within permitted time, the proper officer may initiate the recovery proceedings for recovery of such amount from taxable person.

Where any sum payable under the GST Law has not been paid, the proper officer has following different modes to recover the defaulted sum from such person. These modes have been provided in section 79(1) of the CGST Act, 2017 and are as follows:

(a)   May deduct or require any other officer to deduct the defaulted sum from any money payable to such defaulter.

(b)   May recover or require any other officer to recover the amount by detaining and selling any goods belonging to such defaulter.

(c)   May give notice in writing to any debtor or future debtor of such defaulter to pay money to the Government on account of such person.

(d)   On authorization by Competent Authority, seize any movable and/or immovable property belonging to or under the control of defaulting person and detain till the time defaulted amount is paid by such person. In case amount is not paid within 30 days of such seizure, may cause the sale of such property and from the sale proceeds, satisfy the amount payable and the costs including cost of sale and render any surplus amount to such person.

(e)   May write to Collector of the District, where such person resides or do business or holds property to recover the amount from such person as arrears of land revenue.

(f)    May file an application with the Appropriate Magistrate for proceedings against such person for recovery of such sum as it were a fine imposed by such Magistrate.

Provisional attachment can be made by tax authorities to protect revenue in certain cases. Section 83(1) of CGST Act, 2017 prescribes that in case 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 order the provisional attachment of any property belonging to the taxable person. The provisional attachment order made by Commissioner under section 83(1) of the CGST Act, 2017 remains effective till one year from the date of such order. On expiry of one year from the date of such order, it will cease to have any effect.

Section 83 of CGST Act, 2017, shall apply in relation to following proceedings:

1. Section 62 – Assessment of non-filers of returns.
2. Section 63 – Assessment of unregistered persons.
3. Section 64 – Summary assessment in certain special cases.
4. Section 67 – Power of inspection, search and seizure.
5. Section 73 - Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of other than fraud or any wilful misstatement or suppression of facts.
6. 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 wilful misstatement or suppression of facts.

Release of property attached

In the following situations, the property of a taxable person has been provisionally attached, same may be released by the commissioner in the following circumstances:

1. Where the property attached is of perishable or hazardous nature, and if the taxable person pays an amount equivalent to the market price of such property or the amount that is or may become payable by him, whichever is lower, then such property shall be released forthwith by an order in Form GST DRC-23, on proof of payment.
2. Any person whose property is attached may, within 7 days of such attachment, file an objection to the effect that the property attached was or is not liable to be attached, and the Commissioner may, release the said property by an order in  Form GST DRC-23 after giving an opportunity of personal hearing to the person filing the objection.
3. The Commissioner may, upon being satisfied that the property was, or is no longer liable for attachment, release such property by issuing an order in Form GST DRC-23.

Whether attachment is permanent ?

As the name suggests, the attachment is not permanent but only provisional. The attachment and / or freezing of account is temporary and is subject to release or de-freeze subject to certain conditions and happening of events or conclusion of proceedings.

Section 83(2) is very categorical for release of provisional attachment at the maximum period after the expiry of a period of one year from the date of order.

Period of attachment

According to sub-section (2) of section 83 of CGST Act, 2017, provisional attachment cannot continue forever, as also rejected in the nature of attachment i.e., provisional. Accordingly, all provisional attachments shall to have effect after the expiry of one year from the date of order of the provisional attachment implying that the validity of such order cannot be extended beyond one year.