2019 (12) TMI 1116 - HC - GST

Principles of Natural Justice - Provisional attachment of Bank Accounts - CGST and Gujarat SGT Act - It is the case of the petitioners that after the arrest of the second petitioner on 1.4.2019, no notice had been issued to the petitioners with regard to the issue in question and no show-cause notice had been issued under section 73 or 74 of the GST Acts - Pending proceedings or not - HELD THAT - It appears that according to the respondents, investigation pursuant to the search conducted under section 67 of the GST Acts is still going on and therefore, according to the respondents, the proceedings under section 67 of the GST Acts are not yet completed. In the present case, since the premises of the petitioners came to be searched, the provisions of sub-section (2) of section 67 of the GST Acts would be attracted. In terms thereof, pursuant to an authorisation issued in this behalf, the proper officer may search the premises in respect of which the search is authorised and seize goods, documents or books or things and retain the documents or books or things so long as may be necessary for any inquiry or proceedings under the Act. In the present case, search proceedings were conducted at the premises of the petitioners on 27.9.2018. Thereafter, there was a visit by the respondents on 1.4.2019 which led to the arrest of the second petitioner. Thereafter, no search has been conducted at the premises of the petitioners. The search proceedings have, therefore, ended. On a plain reading of section 83 of the GST Acts, it is clear that a sine qua non for exercise of powers thereunder is that proceedings should be pending under section 62 or section 63 or section 64 or section 67 or section 73 or section 74 of the GST Acts - In the present case, the proceedings under section 67 of the GST Acts are no longer pending and pursuant to the search, proceedings under any of the other sections mentioned in section 83 have not been initiated. Under the circumstances, on the date when the orders of provisional attachment came to be made, the basic requirement for exercise of powers under section 83 of the GST Acts was not satisfied. The provisional attachment of the bank accounts of the petitioners under section 83 of the GST Acts is, therefore, not in consonance with the provisions thereof and cannot be sustained. In the absence of pendency of any proceedings under sections 62, 63, 64, 67, 73 or 74 of the GST Acts, the orders of provisional attachment of the bank accounts of the petitioners under section 83 of the GST Acts are without authority of law and are rendered unsustainable. The impugned orders of provisional attachment passed under section 83 of the GST Acts are hereby quashed and set aside and the respondents are directed to forthwith release the attachment over the said bank accounts as well as the bank accounts listed at Annexure-B to the petition - petition allowed.

Summary

Issues Involved:
1. Legality of provisional attachment orders under section 83 of the GST Acts.
2. Pendency of proceedings under section 67 of the GST Acts.
3. Compliance with procedural requirements for provisional attachment.
4. Validity of input tax credit claims by the petitioners.

Detailed Analysis:

1. Legality of Provisional Attachment Orders Under Section 83 of the GST Acts:
The petitioners challenged the provisional attachment orders dated 18.10.2019 under section 83 of the GST Acts, which provisionally attached their bank accounts. The petitioners argued that the provisional attachment was "wholly without jurisdiction and illegal" as no proceedings were pending under sections 62, 63, 64, 67, 73, or 74 of the GST Acts, which is a sine qua non for exercising powers under section 83. The court noted that the basic requirement for exercising powers under section 83 was not satisfied, rendering the provisional attachment orders unsustainable.

2. Pendency of Proceedings Under Section 67 of the GST Acts:
The respondents contended that proceedings under section 67 were still ongoing, justifying the provisional attachment. However, the court found that the search at the petitioners' premises on 27.9.2018 and subsequent visit on 1.4.2019 did not constitute ongoing proceedings under section 67. The court stated, "it cannot be said that any proceedings are pending under section 67 of the GST Acts," thus invalidating the basis for the provisional attachment.

3. Compliance with Procedural Requirements for Provisional Attachment:
The petitioners argued that the drastic provision of section 83 should be invoked only if authorities form an opinion based on "tangible material on objective facts" that attachment is necessary to protect the revenue. The court observed that the respondents had not recorded any such satisfaction in the impugned orders. The court referenced the case of Vishwanath Realtor Vs. State of Gujarat, emphasizing that provisional attachment is permissible only if the dealer's past conduct suggests they might defeat the revenue's claim.

4. Validity of Input Tax Credit Claims by the Petitioners:
The petitioners claimed input tax credit for tax paid on purchases, which was utilized towards payment of output tax liability. They argued that their suppliers were registered vendors who had deposited tax into the Government treasury, as reflected in Form GSTR-2A. The respondents alleged that the petitioners availed input tax credit based on invoices without actual receipt of goods, causing a loss to the Government revenue. The court noted that these contentions were beyond the scope of the present petition, which focused on the legality of the provisional attachment orders.

Conclusion:
The court concluded that the provisional attachment orders dated 18.10.2019 were "without authority of law" due to the absence of pending proceedings under the relevant sections of the GST Acts. The petition succeeded, and the court quashed the impugned orders, directing the respondents to release the attachment over the petitioners' bank accounts. The court left the petitioners' contentions regarding input tax credit claims to be addressed in appropriate proceedings before the relevant forum.