2020 (1) TMI 569 - HC - GST

Provisional attachment of bank account of petitioner - restraint on respondent from taking coercive steps against the Petitioner and its Directors/employees - only grievance of Petitioner is that their OCC account has been attached which amounts to closure of their business - HELD THAT - The Respondent has power to attach property and bank account of any taxable person to protect interest of revenue. Person aggrieved may make representation against attachment of property or bank account and Commissioner after affording opportunity of hearing is bound to decide representation in one or another way. On perusal of Section 83 of CGST Act and Rule 159 of CGST Rules, it is found that 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) or Section 67 (inspection, search and seizure) or Section 73 (determination of tax not paid otherwise than fraud) or Section 74 (determination of tax not paid on account of fraud), the Commissioner may provisionally attach any property including bank account. The power of attachment is not absolute. In the present case attached account is Over Cash Credit account and Petitioner had debit balance of ₹ 6.42 Crore, thus question arises that whether continuation of attachment would protect interest of revenue or not. The Petitioner is running unit and more than 100 families are dependent upon Petitioner. Till date no proceedings under Section 74 of CGST Act are pending which would start as soon as show cause notice is issued. The Respondent has seized record of the Petitioner who has further supplied various documents as well put personal appearance through Directors and employees - The mandate of Section 83 is to attach amount lying in an account in the form of FDR or saving and it cannot be intention or purport of Section 83 to attach an account having debit balance. No purpose leaving aside securing interest of revenue is going to be achieved except closure of business which cannot be permitted unless and until running of business itself is prohibited by law - The contention of Respondent that they have power to attach bank account irrespective of nature of account cannot be countenanced. Respondent can attach an account only if there is some balance in the form of FDR or savings. The power of attachment of bank account cannot be exercised as per whims and caprices of the Authority. The Commissioner is bound to ensure that by attachment of property or bank account, interest of revenue is going to be protected - attachment of current account having debit balance does not protect interest of revenue, instead merely ruins the business of a dealer. Such an action of attachment of over cash credit account for the sake of recovery of confirmed demand, may in some peculiar case, may be still permitted but not at the stage of pending investigation. Petition allowed - decided in favor of petitioner.

Issues Involved:
1. Legality of the provisional attachment of the Petitioner’s Over Cash Credit (OCC) bank account under Section 83 of the CGST Act, 2017.
2. Impact of the attachment on the Petitioner’s business operations.
3. Compliance with procedural safeguards under Section 83 of the CGST Act and Rule 159 of the CGST Rules, 2017.
4. Comparison with similar provisions under the Income Tax Act, 1961.

Detailed Analysis:

1. Legality of the Provisional Attachment:
The Petitioner, a limited company, sought the quashing of orders dated 10.07.2019 and 12.09.2019, whereby the Respondent provisionally attached the Petitioner’s OCC bank account under Section 83 of the CGST Act, 2017. The Petitioner argued that the attachment was illegal as the account had a debit balance of ?6.42 Crore, and thus, there was no question of protecting the interest of revenue. The Respondent contended that the attachment was necessary to safeguard government revenue due to the Petitioner’s alleged wrongful availing of ITC amounting to ?13.38 Crore from untraceable suppliers.

2. Impact on Business Operations:
The Petitioner argued that the attachment of the OCC account, which had a debit balance, amounted to the closure of their business. They emphasized that the company was a running unit with over 100 families dependent on it, and the closure would deprive these families of their livelihood. The Respondent, however, maintained that the attachment was a legitimate measure to protect revenue and did not violate any constitutional rights.

3. Procedural Safeguards:
The Court highlighted that the power to attach property under Section 83 of the CGST Act is not absolute and must be exercised with caution. The attachment must be necessary to protect the interest of revenue, and the Commissioner must form an opinion based on rational connection and relevant bearing on the formation of the opinion. The Court noted that the attachment of a bank account with a debit balance does not serve the purpose of protecting revenue but rather ruins the business of the dealer.

4. Comparison with Income Tax Act Provisions:
The Court referred to similar provisions under Sections 226(3) and 281B of the Income Tax Act, 1961, and relevant case law. It was observed that the power of provisional attachment should be exercised only if there is a reasonable apprehension that the assessee may thwart the ultimate collection of the demand. The attachment should be of properties to the extent required to achieve the objective of protecting revenue and should not be used as a tool to harass the assessee. The Court emphasized that the attachment of bank accounts and trading assets should be resorted to only as a last resort.

Conclusion:
The Court concluded that the impugned orders dated 10.07.2019 and 12.09.2019 were contrary to the intent and purpose of Section 83 of the CGST Act, 2017. The provisional attachment of the OCC account with a debit balance did not protect the interest of revenue and instead harmed the Petitioner’s business. The Court quashed the impugned orders, emphasizing that the power of attachment under Section 83 should be exercised sparingly and only on substantive grounds, ensuring that the interest of revenue is genuinely protected without causing undue harm to the business operations of the taxable person.

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