SC case on Provisional attachment of the property under GST Axt─Critical Analysis

[OmPrakash jain]

SC case on Provisional attachment of the property under GST Axt─Analysis

In the recent case of M/S RADHA KRISHAN INDUSTRIES VERSUS STATE OF HIMACHAL PRADESH & ORS. [2021 (4) TMI 837 - SUPREME COURT], the Hon’ble Supreme Court held that, the power of provisional attachment of the property of the taxable person is to be resorted as a measure of last resort and that too based on opinion by the Commissioner that attaching the property is necessary for the purpose of protecting the interest of the government revenue. Such opinion should be based on tangible material bearing on the necessity of ordering a provisional attachment. The expression “necessary so to do for protecting the government revenue” u/s 83(1) implies that the interests of the government revenue cannot be protected without ordering a provisional attachment.

At the same time the conditions prescribed by the statute for a valid exercise of the power must be strictly followed.

It has been further held that after the final order u/s 74 of the HPGST Act, the order of provisional attachment ceased to exist

The Hon’ble Supreme Court also held that there was a clear non-application of mind by the Respondent to the provisions of Section 83, rendering the provisional attachment illegal. There has been a breach of the mandatory requirement of Rule 159(5) and the Respondent was clearly misconceived in law in coming into conclusion that the Respondent. had a discretion on whether or not to grant an opportunity of being heard; The Respondent is duty bound to deal with the objections to the attachment by passing a reasoned order which must be communicated to the taxable person whose property is attached; While quashing  the judgment of the M/S RADHA KRISHAN INDUSTRIES VERSUS STATE OF H.P. AND OTHERS [2021 (1) TMI 101 - HIMACHAL PRADESH HIGH COURT], the orders of provisional attachment were also quashed by the Hon’ble Supreme Court,.

Analysis of judgment of the Hon’ble Supreme Court.─

1.Pendency of proceedings─The Hon’ble Supreme Court analysed S.83(1), GST Act prior to its amendment by the Finance Act, 2021;

S.83(1). Where during the pendency of any proceedings 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 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.

It has been rightly observed by the Hon’ble Supreme Court that;

The order of provisional attachment was passed before the proceedings against the Appellant were initiated under Section 74 of the HPGST Act. Section 83 of the HPGST Act requires that there must be pendency of proceedings under the Section 62 (assessment of non-filers of returns) or Section 63 (assessment of unregistered persons) or Section 64 (summary assessment in certain special cases) or Section 67 (power of inspection, search and seizure) or Section 73 (determination of tax in non-fraud cases) or Section 74 (determination of tax in fraud cases) against the taxable person whose property is sought to be attached.

Recently, in the case of M/S KANAL ENTERPRISE VERSUS STATE OF GUJARAT [2020 (9) TMI 879 - GUJARAT HIGH COURT], it was held that there is no power vested in the authorities to invoke the provisions of S.83 during the pendency of the proceedings instituted u/s 71(1) of the Act. In fact, there cannot be any proceedings, which could be instituted u/s 71 of the Act. Therefore, the order of attachment u/s 83 of the Act was quashed.

In another case of PROEX FASHION PRIVATE LIMITED VERSUS GOVERNMENT OF INDIA & ORS. [2021 (1) TMI 365 - DELHI HIGH COURT], the order attaching the Bank account giving reference of S.71, was declared ultra vires the statutory powers of the respondent and was quashed since S.71─Acess to Business was not covered within the scope of provisional attachment of property u/s 83

It is worth mentioning that in the case of UNION OF INDIA & ANR. VERSUS KUSHAL LTD & ANR. [2020 (11) TMI 961 - SC ORDER], the Hon’ble Supreme court has kept in abeyance the phrase “No pendency of the proceedings during Investigation”. This case is still pending in the Supreme Court.

To nullify all these judgments announced in favour of the party, S.83(1) has been amended by the CBIC/Govt. by plugging correct interpretation by different courts in favour the Taxable person in the wake of fundamental right of citizens of India to carry on the business smoothly. And this shows non friendly approach of the CBIC leading to lot of public money being wasted on legal matters by the Govt.

While carrying out amendment to S.83(1), the Govt. has completely ignored the adverse comments made in the judgment of VINODKUMAR MURLIDHAR CHECHANI PROPRIETOR OF M/S CHECHANI TRADING CO. VERSUS STATE OF GUJARAT & 1 OTHER (S) [2021 (1) TMI 795 - GUJARAT HIGH COURT] wherein the court while quashing the orders of provisional attachment of two bank accounts, commented adversely on Mechanical exercise of the power by the assessing authorities and held that Mechanical exercise of the power u/s 83, CGST Act, for Attachment of bank accounts of a going concern is an abuse to the legal provisions without application of mind.

Though the amendment made by the Finance Act, 2021 are yet to be implemented, the amended S.83(1) is as under;

“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 Govt. 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.”.

By this amendment;

The words;

i) “after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV”,

have been substituted for the following words;

“during the pendency of any proceedings under section 62 or section 63 or section 64 or section 67 or section 73 or section 74”,

and

ii) the words “or any person specified in sub-section (1A) of section 122”,  have been added.

Meaning thereby that;

i) the scope of provisional attachment has been increased to a great extent as under;

a) initiation of any proceedings u/s 59 to S.64,  S.67 to S.72 & S.73 to 84 are now covered the purpose of provisional attachment of property.

Thus, now CBIC has been empowered to attach the property, when proceedings are “initiated u/s S.71, GST Act, regarding “Access to Business Premises”, of course after obtaining the opinion by the Commissioner that attaching the property is necessary for the purpose of protecting the interest of the government revenue.

2. The opinion of the Commissioner─The formation of an opinion by the Commissioner for attaching the property must be based on tangible material bearing on the necessity of ordering a provisional attachment for the purpose of protecting the interest of the government revenue. The expression “necessary so to do for protecting the government revenue” u/s 83(1) implies that the interests of the government revenue cannot be protected without ordering a provisional attachment.

Due to Mechanical exercise of the power by the assessing authorities coupled with incidence/pressure of increasing Govt. Revenue, and inaction of the officials of the Govt., the power of formation of an opinion by the Commissioner for attaching the property, is likely to be misused.

3. Opportunity of being heard─The Govt. is duty bound to deal with the objections to the attachment by passing a reasoned order, which is altogether missing as observed by various High courts while tendering the decision favouring the assessees.

In this way the CBIC has assumed unbridled power to harass various citizens of India, by way of amendment in the GST Act and nullified the various judgments announced by different High Courts as well as the Supreme Court in favour of the party. Thus it has been demonstrated by the CBIC that the Govt. is adopting a complete non friendly approach towards various taxable persons.

In due course of time the implementation date of this amendment will be announced by the CBIC.

 

CA Om Prakash Jain

4 BHA 24, JAWAHARNAGAR,

JAIPUR-302004

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Discussions to this article

[KASTURI SETHI]

Dear Jain Ji,

Excellent understanding, interpretation and analysis of the judgement. Very very useful article.

[RAJESHMANGAL AGRAWAL]

Excellent Article.Really the approach of CBEC/CBDT and the Govt. is very panic. Changing the law (that too retrospective in some cases) to defeat the well pronounced judgments is not at all a welcome step. The law must be Assessee friendly always. See there are some culprit in all the fore corners of world, but the law should not be like that every one is Culprit.