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2020 (12) TMI 1047 - HC - GSTLegality and validity of the Provisional attachment of all Bank Accounts - misclassification of products thereby evading payment of due GST - carbonated fruit drinks, such as, Big Cola, Big Orange Cola, Big Lemon and similar other products - HELD THAT - According to respondent No.2 proceedings have been launched against the taxable person i.e. the petitioner under section 67 of the CGST Act to determine the tax or any other amount due from the petitioner. From the information available it had come to the notice of respondent No.2 that petitioner has three bank accounts as mentioned therein. In order to protect the interest of revenue and exercising power conferred under section 83 of the CGST Act, respondent No.2 provisionally attached the aforesaid bank accounts. Respondent No.3 i.e. the Branch Manager of the ICICI Bank was requested that no debit should be allowed to be made from the said accounts or any other accounts operated by the petitioner without the prior permission of the department. Where the proper officer not below the rank of Joint Commissioner has reasons to believe that a taxable person has suppressed any transaction relating to supply of goods or services or both or the stock of goods in hand or has claimed input tax credit in excess of his entitlement under the CGST Act or has indulged in contravention of any of the provisions of the CGST Act or the rules made thereunder to evade tax under the CGST Act, he may authorize in writing inspection of any place of business of the taxable person - A conjoint reading of the relevant provisions of section 67 and section 83 of the CGST Act would indicate that the proper officer must have reasons to believe that the taxable person has suppressed any taxable transaction to evade payment of tax. It is not necessary for us at this stage to delve into the meaning of the expression reasons to believe employed in section 67 which has its own connotation in fiscal statutes. Suffice it to say, requirement of section 67(1)(a) is that the proper officer should have reasons to believe that the taxable person has suppressed any taxable transaction to evade payment of tax. It is quite clear that petitioner had disclosed the details of its goods and had applied the classification which it thought was appropriate. On that basis it had filed its CGST returns and had been assessed. It is not the case that petitioner has defaulted in payment of tax as per its returns or assessment. On the other hand, respondent Nos.1 and 2 contends that it is a case of misclassification which has led to short payment of GST. Whether recourse to section 83 is warranted at this stage has not been dealt with in the record. Merely because there is a proceeding under section 67 would not mean that recourse to such a drastic power as under section 83 would be an automatic consequence, more so when petitioner has cooperated with the investigation. That apart, section 83 speaks of provisional attachment of any property including bank account. The record is silent as to whether any attempt has been made for provisional attachment of any property of the petitioner and instead why the bank accounts should be attached. Besides, by use of the word may in sub-section (1) of section 83 Parliament has made it quite clear that exercise of such a power is discretionary. When discretion is vested in an authority, such discretion has to be exercised in a just and judicious manner, more so when the power conferred under section 83 admittedly is a very drastic power having serious ramifications. Such power having the potential to adversely affect property rights of persons as well as life and liberty under Article 21 of the Constitution of India has to be exercised in a fair and reasonable manner. The impugned order dated 18th/ 19th November, 2020 is stayed - withdrawal of the provisional attachment of the bank accounts of the petitioner is directed. Stand over to 9th March, 2021 for final hearing.
Issues Involved:
1. Legality and validity of the provisional attachment of bank accounts under Section 83 of the CGST Act. 2. Misclassification of products leading to alleged short payment of GST. 3. Compliance with Section 67 of the CGST Act regarding inspection, search, and seizure. 4. Relevance and applicability of previous judgments and orders on product classification. Detailed Analysis: 1. Legality and Validity of Provisional Attachment of Bank Accounts: The primary issue addressed in this judgment is the legality and validity of the provisional attachment of the petitioner's bank accounts under Section 83 of the CGST Act. The petitioner sought quashing of the order dated 18th/19th November 2020, which provisionally attached their bank accounts. The court examined Section 83, which allows the Commissioner to provisionally attach property, including bank accounts, if it is deemed necessary to protect the interest of government revenue during the pendency of proceedings under sections 62, 63, 64, 67, 73, or 74 of the CGST Act. The court emphasized that the exercise of such power must be just and judicious, noting that the petitioner had cooperated with the investigation and offered other assets to secure the revenue's interest. The court found the provisional attachment of bank accounts to be harsh and excessive, thus arbitrary, and ordered its withdrawal. 2. Misclassification of Products Leading to Alleged Short Payment of GST: The petitioner, a manufacturer of carbonated fruit drinks, classified their products under Tariff Item 2202 99 20, attracting a 12% tax rate. The departmental authorities initiated an investigation, suspecting misclassification, which allegedly led to a short payment of tax amounting to approximately ?33 crores. The respondents argued that the correct classification should be under HSN Code 2202 10 90, attracting a higher GST rate of 28% and a cess of 12%, based on the fruit juice content regulations. The court noted that the petitioner had disclosed product details and filed GST returns based on their classification, and it was not a case of tax evasion but potentially a misclassification issue. 3. Compliance with Section 67 of the CGST Act Regarding Inspection, Search, and Seizure: The respondents initiated proceedings under Section 67 of the CGST Act, which deals with the power of inspection, search, and seizure. The court analyzed Section 67, which requires the proper officer to have reasons to believe that a taxable person has suppressed transactions or contravened provisions to evade tax. The court found that the petitioner's actions did not constitute suppression of taxable transactions or evasion of tax, as they had disclosed product details and cooperated with the investigation. 4. Relevance and Applicability of Previous Judgments and Orders on Product Classification: The petitioner relied on the Supreme Court judgment in Parle Agro (P) Ltd. and the CESTAT decision in Brindavan Beverages Private Limited, which supported their product classification. Additionally, the Commissioner of Customs (Appeals), Kolkata, had upheld a similar classification for one of the petitioner's group companies. The respondents contended that these judgments were not applicable, as the fruit juice content in the petitioner's products was below 10%. The court noted that the respondents' dismissal of the appellate authority's order was devoid of particulars and showed disregard for the appellate decision. The court emphasized that the petitioner's classification was based on existing judgments and regulatory interpretations, undermining the respondents' claim of suppression or evasion. Conclusion: The court concluded that the provisional attachment of the petitioner's bank accounts was not justified, as the petitioner had offered other assets to secure the revenue's interest, and the attachment was deemed harsh and excessive. The court stayed the impugned order and directed the withdrawal of the provisional attachment of the bank accounts, subject to the petitioner furnishing an undertaking not to alienate their land, building, plant, and machinery during the pendency of the proceedings. The case was adjourned for final hearing on 9th March 2021.
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