2020 (10) TMI 50 - HC - GST

Unfreezing of Bank Account of petitioner - refund of GST/ IGST - HELD THAT - From Sub-section (5) of Section 110 of Customs Act, it is evident that the said provision was inserted in the statute with effect from 1st August, 2019. Besides, from the tone and tenor of the sub-section it is apparent that it is not a procedural provision per se; rather it is coercive in nature, though the procedure is also laid down for giving effect to the said provision. Being a coercive provision, there has to be strict compliance to the procedure laid down. In such circumstances and having regard to its very nature, such a provision can only have prospective operation and not retrospective operation. Infact, the concerned Finance Act makes it explicit by making the provision effective from a prospective date i.e. from 1st August, 2019. Letter from the office of the Principal Commissioner of Customs to the Branch Manager of IDFC Bank was issued on 1st March, 2019 for freezing of the bank account of the petitioner. This was prior to insertion of sub-section (5) in Section 110 with effect from 1st August, 2019. Therefore, it is quite clear that this provision could not have been invoked for freezing the bank account of the petitioner - Learned counsel for the respondents could not show any other provision in the Customs Act which empowers or authorizes the customs department to freeze the bank account of a person other than sub-section (5) of Section 110. Such attachment of bank account of the petitioner on 1st March, 2019 and its continuation thereafter being in breach of Section 110(5) is therefore, without any authority of law. Refund of GST/IGST - HELD THAT - The alert has been placed on the IEC of the petitioner on the basis of materials which are presently under investigation of the customs department. For the said reason, refund of IGST/GST dues has also been held up. However, we feel that the investigation needs to be expedited and taken to its logical conclusion one way or the other because extreme measures such as placing of alert on IEC and withholding of IGST/GST dues can not be continued for an indefinite period. The same cannot be continued ad-infinitum merely on the basis of suspicion, howsoever strong such suspicion may be. In the absence of such material, referring to any person as a hardened criminal that too in a sworn affidavit filed before the High Court is not proper. The affiant or for that matter any one swearing affidavit before the court should be careful in making averments which in any event should be restrained. Respondents are directed to unfreeze the bank account of the petitioner - Respondents are also directed to complete the investigation into the allegations against the petitioner within a period of three months from the date of receipt of a copy of this order - Placing of alert on Import Export Code of the petitioner or claim of refund of IGST/GST would be subject to outcome of such investigation. Petition allowed.

Summary

Issues Involved:
1. Freezing of the petitioner's bank account.
2. Placing an alert on the petitioner's Import Export Code (IEC).
3. Withholding of Integrated Goods and Services Tax (IGST) refund.

Detailed Analysis:

1. Freezing of the Petitioner's Bank Account:
The petitioner challenged the freezing of its bank account, which was done through a letter dated 1st March 2019 from the Principal Commissioner of Customs to IDFC Bank. The letter requested the bank to not allow any withdrawals from the petitioner's account. The petitioner argued that this action was illegal and arbitrary, as Section 110(5) of the Customs Act, which allows for provisional attachment of bank accounts, was only inserted with effect from 1st August 2019 and could not be applied retrospectively. The court agreed with the petitioner, noting that the provision is coercive in nature and requires strict compliance with procedural requirements, including a written order from a proper officer with the approval of the Principal Commissioner or Commissioner of Customs. Since no such order was presented by the respondents, the court held that the freezing of the bank account was without authority of law and directed the respondents to unfreeze the account forthwith.

2. Placing an Alert on the Petitioner's IEC:
The petitioner contended that the alert placed on its IEC was based on mere suspicion and had brought its business to a standstill. The respondents justified the alert by alleging that the petitioner was involved in circular trading to fraudulently claim IGST refunds. The court acknowledged that the alert was based on ongoing investigations but emphasized that such extreme measures could not be continued indefinitely. The court directed the respondents to expedite the investigation and complete it within three months, stating that the alert on the IEC and the withholding of IGST refunds would be subject to the outcome of the investigation.

3. Withholding of IGST Refund:
The petitioner sought the release of withheld IGST refunds, arguing that it had complied with all legal requirements. The respondents claimed that the petitioner had fraudulently obtained government benefits through circular trading. The court noted that the withholding of IGST refunds was linked to the ongoing investigation and reiterated the need for the investigation to be concluded promptly. The court ruled that the claim for IGST refunds would be subject to the results of the investigation.

Conclusion:
The court allowed the writ petitions and issued the following directions:
1. The respondents must unfreeze the petitioner's bank account immediately.
2. The respondents must complete the investigation within three months.
3. The alert on the petitioner's IEC and the claim for IGST refunds would depend on the investigation's outcome.

The court also advised caution in making unsubstantiated allegations in affidavits, noting that the respondents had described the petitioner as a "hardened criminal" without presenting evidence of any criminal conviction or charges. The court's directions and observations applied equally to the other petitioners in related writ petitions.