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2021 (2) TMI 392 - HC - GSTProvisional attachment of escrow bank account - shares of the petitioner / contractor - Joint Escrow account opened by the Principal - seeking to direct the Respondent No.4 to transfer 97% of the amount lying in escrow account to the account of the Petitioner No.1 as per instruction dated 25.07.2017 - Section 83 of the CGST Act - HELD THAT - From Section 83 it is discernible that such power can be exercised only if any proceedings under mentioned provisions of the act have been initiated against the taxable person. In the present case, the 'taxable person' is respondent No.3 and it appears that proceedings under the CGST Act have been initiated against the said respondent. As part of the said proceedings, the escrow account which stood in the joint names of respondent No.3 being the first holder and petitioner No.1 (second holder) was provisionally attached vide order dated 27.09.2019. Petitioners have pleaded that since no proceedings have been contemplated and / or initiated under any of aforesaid provisions of the CGST Act against petitioners, the provisional attachment of the escrow account to the extent of 97% of the receipts received in the account belonging to the petitioners is not justified and is ex-facie arbitrary. It is an undisputed and admitted position that in view of the contractual arrangement between respondent No.3 and petitioner No.1, the receipts received in the escrow account belonged to the respective parties in the proportion as agreed upon by the parties. These receipts have been in respect of the amounts deposited by the MSPGCL into the escrow account pertaining to the running account (RA) bills of the work done / completed. In the past, receipts of amounts pertaining to 11 RA bills had been apportioned in the agreed manner. The receipt of amounts pertaining to the 12th RA bill into the escrow account has been provisionally attached due to proceedings initiated against respondent No.3 by respondent Nos. 1 and 2. Since respondent No. 3 has not raised any grievance, we may not go into the proceedings initiated under the provisions of Section 74 of the CGST Act against respondent No.3 in the present petition. Case of the petitioners, needs to be considered as admittedly petitioner No. 1 is not the taxable person. Petitioners have filed their statutory objections under Rule 159(5) of the CGST Rules in response to the fresh provisional attachment order dated 22.09.2020 before respondent No.2. Respondent No.2 shall give a hearing to the petitioners and decide their objections in accordance with the provisions of the CGST Act and the CGST Rules. Considering the admitted fact that no proceedings have been initiated against the petitioners and no inquiry has been contemplated against the petitioners under the provisions of the CGST Act, we direct that until decision is taken on the objection filed by the petitioners by respondent No.2, petitioner No.1 shall maintain a balance of ₹ 5,00,000.00 in the escrow account out of the share belonging to the petitioner No.1 - we lift the provisional attachment in so far as petitioner No. 1 s share in the escrow account is concerned subject to maintaining credit balance of ₹ 5,00,000.00 by petitioner No. 1 out of its share and direct that respondent No.4 would be at liberty to transfer / remit the proportionate amount due to petitioner No. 1 to the account of petitioner No.1 and maintain balance of ₹ 5,00,000.00 till the aforementioned decision is taken. Petition disposed off.
Issues Involved:
1. Legality of the provisional attachment orders dated 27.09.2019 and 22.09.2020. 2. Petitioners' entitlement to 97% of the escrow account funds. 3. Respondent No.2's authority to attach the escrow account. 4. Petitioners' statutory objections under Rule 159(5) of the CGST Rules. 5. Impact of proceedings against Respondent No.3 on Petitioners. Detailed Analysis: 1. Legality of the Provisional Attachment Orders: The petitioners challenged the provisional attachment orders dated 27.09.2019 and 22.09.2020 issued by Respondent No.2, which attached the escrow account held jointly by Petitioner No.1 and Respondent No.3. The first order dated 27.09.2019 automatically expired after one year under Section 83(2) of the CGST Act, leading to the issuance of a fresh order dated 22.09.2020 during the pendency of the writ petition. The court noted that the attachment was due to proceedings initiated against Respondent No.3 under Section 74 of the CGST Act. 2. Petitioners' Entitlement to 97% of the Escrow Account Funds: Petitioner No.1, a contractor, was entitled to 97% of the funds in the escrow account based on a Sub Contract Agreement and MOU with Respondent No.3. The court acknowledged that MSPGCL credited the funds into the escrow account, and the agreed proportion was 3% to Respondent No.3 and 97% to Petitioner No.1. The court found that the provisional attachment affected Petitioner No.1's share, despite no proceedings being initiated against them under the CGST Act. 3. Respondent No.2's Authority to Attach the Escrow Account: Respondent No.2 justified the attachment under Section 83 of the CGST Act to protect government revenue due to proceedings against Respondent No.3. However, the court highlighted that the escrow account had standing instructions to remit 97% of the funds to Petitioner No.1, and only 3% belonged to Respondent No.3. The court found that the attachment of Petitioner No.1's share was arbitrary and unjustified since no proceedings were initiated against them. 4. Petitioners' Statutory Objections under Rule 159(5) of the CGST Rules: Petitioners filed objections to the fresh provisional attachment order dated 22.09.2020, which were not decided by Respondent No.2. The court directed Respondent No.2 to consider and decide the objections in accordance with the CGST Act and Rules. The court also noted that the petitioners were not served with the attachment orders and learned about them from the bank. 5. Impact of Proceedings Against Respondent No.3 on Petitioners: The court recognized that the petitioners were adversely affected by the actions taken against Respondent No.3. Since Petitioner No.1 was not the taxable person and no inquiry was initiated against them, the court found that their legitimate grievance needed redressal. The court directed that Petitioner No.1 should maintain a balance of ?5,00,000 in the escrow account and allowed the release of the remaining funds to Petitioner No.1, subject to the outcome of the decision on their objections. Conclusion: The court disposed of the writ petition by lifting the provisional attachment on Petitioner No.1's share in the escrow account, subject to maintaining a balance of ?5,00,000. The court directed Respondent No.2 to consider the petitioners' objections and decide them in accordance with the law. The remaining 3% share belonging to Respondent No.3 would continue to remain attached. No order as to costs was made.
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