2023 (11) TMI 350 - HC - GST

Attachment of Bank account of petitioner - attachment during the pendency of investigation - fresh order of extension beyond the period of one year - HELD THAT - Section 83 provides that for the purpose of protecting the interest of government revenue, the provisional attachment of any property including bank account belonging to the taxable person as prescribed in this provision, is permissible. It is clear from the very provision of the act that during the pendency of any proceedings under Section 62, 63, 64, 67, 73, 74, the commissioner on a subjective satisfaction if finds it necessary for the purpose of protecting the interest of government revenue may, by an order, in writing attach provisionally any property which may include the bank account which should belong to the taxable person and this provisional attachment shall cease to have effect after expiry of period of one year from the date of order made under sub-section (1). Here, according to the respondent, the petitioner has admitted his tax liability and promised to pay, but, he has not paid the government dues and therefore, the respondent according to its affidavit-in-reply by way of abundant precaution for protecting the revenue s interest has proceeded to attach and freeze the bank accounts on 27.02.2020 and 02.03.2020. According to the Respondent, more than Rs. 1,00,00,000 is available in the State Bank Accounts and the respondent department exercising the powers vested under Section 83(2) of the CGST Act after obtaining the approval of the competent authority has again sent the letter on 09.02.2021 to the banks directing them to freeze the facility of withdrawal of amount from these accounts for one more year in order to protect the government revenue. Entertainment of the challenge to the merit is not desirable at this juncture at all as appropriate Authority would determine that aspect and statutory remedies would also demand address to such core issue at the relevant point of time. Therefore, this Court has chosen not to enter into the details of business model as explained in the statement of the petitioner and whether the transaction in money amounts to service attracting taxability under the Statute, except for the limited purpose of examining the apt exercise of powers under Section 83 of the Act prior to the finalization of assessment and raising of demand. What has also been pressed into service before this Courtis the decision of the Apex Court in case of M/S RADHA KRISHAN INDUSTRIES VERSUS STATE OF HIMACHAL PRADESH ORS. 2021 (4) TMI 837 - SUPREME COURT where the Apex court has held that the nature of provisional attachment being a draconian power, exercised before finalization of assessment or raising of the demand, the same has to be exercised with due caution. It is provisional as an aid of something else and its purpose is to protect revenue. Its validity depends on strict observance of statutory preconditions. Formation of commissioner s opinion must approximate and live nexus to protection of revenue interest and it is not left to unguided subjective discretion of the commissioner s opinion which must be based on tangible material regarding statutory requirement. As per the decision of the Apex court that the Court shall need to examine whether the commissioner exercised the powers under Section 83 read with Rule 159 in accordance with law and the material fact for making determination needs to be kept in mind where this Court also needs to bear in mind the necessity of provisional attachment which implicates the doctrine of proportionality which mandates the existence of approximate or live link between the need for attachment and the purpose which it is intends to secure - The mandatory requirement of furnishing the opportunity to the person whose property is attached is in consonance with the principle of natural justice which ensures a fair procedure. Provisional attachment of bank account without passing any fresh order after expiry of statutory period that too without compliance of necessary formalities would not be endorseable. The attachment of the bank account after expiry of prescribed period without passing fresh orders would surely be illegal in violation of rights of Assessee for carrying on business under article 19 of the Constitution of India as was held by the Calcutta High Court in case of Amazonite Steel Private Limited vs. union of India 2020 (3) TMI 1179 - CALCUTTA HIGH COURT . However, even after expiry of one-year period as prescribed under the law, it is incumbent upon the authorities to release the provisional attachment by informing the bank on issuance of a fresh order of provisional attachment since the very purpose for which this exercise of provisional attachment was done is not completed. Petition disposed off.

Summary

Issues Involved:
1. Legality of the provisional attachment of bank accounts under Section 83 of the CGST Act.
2. Allegation of forced admission of GST liability.
3. Continuation of investigation and its impact on the provisional attachment.
4. Compliance with procedural requirements under the CGST Act and Rules.

Issue-wise Detailed Analysis:

1. Legality of the provisional attachment of bank accounts under Section 83 of the CGST Act:
The petitioners challenged the action of the respondent directing the Branch Managers of AU Small Finance Bank, Kotak Mahindra Bank, and State Bank of India to freeze their bank accounts and stop the operation of the bank locker under Section 83(1) of the CGST Act. The respondents justified the provisional attachment stating it was necessary to protect government revenue, as the petitioners were allegedly involved in substantial GST evasion and fraudulent activities. The court noted that Section 83 allows for provisional attachment during the pendency of proceedings under specified sections of the CGST Act to protect government revenue. The court emphasized the necessity of forming an opinion based on tangible material and the requirement that such attachment should not be arbitrary or excessive. The court referred to precedents, including the Supreme Court's decision in Radha Krishan Industries vs. State of Himachal Pradesh, which highlighted the draconian nature of provisional attachment and the need for strict compliance with statutory preconditions.

2. Allegation of forced admission of GST liability:
The petitioners contended that the admission of GST liability amounting to Rs. 51 crores was made under coercion and force by the GST officers. They argued that there was no genuine admission of liability and that the business model of the petitioners did not attract GST. The court noted the petitioners' claim that the GST department had not taken any steps even after the expiry of the one-year period from the date of attachment and the issuance of the show-cause notice. The court acknowledged the petitioners' assertion that the investigation was based on assumptions and lacked a legal basis. However, the court refrained from delving into the merits of the petitioners' business model and the taxability of their transactions, stating that these issues should be addressed by the appropriate authority during the assessment proceedings.

3. Continuation of investigation and its impact on the provisional attachment:
The respondents argued that the investigation was ongoing and that the provisional attachment was necessary to prevent the petitioners from utilizing the funds in the bank accounts, which were allegedly generated through illegal activities. The court recognized the respondents' need to protect government revenue but also noted that the investigation had been prolonged. The court directed the respondents to complete the investigation within three months, emphasizing that the prolonged investigation should not unduly harm the petitioners' business operations. The court also highlighted that if the investigation was not completed within the specified period, the provisional attachment would need to be lifted.

4. Compliance with procedural requirements under the CGST Act and Rules:
The petitioners alleged that the respondents had not followed the due procedure prescribed under the CGST Act and Rules, particularly concerning the issuance of authorization for seizure and the extension of the provisional attachment beyond the one-year period. The court examined the procedural requirements under Section 83 and Rule 159 of the CGST Rules, which mandate the formation of an opinion by the Commissioner, the issuance of an order in writing, and the provision of an opportunity for the affected party to file objections and be heard. The court found that the respondents had issued fresh orders of provisional attachment after the expiry of the initial one-year period, thereby complying with the statutory requirements. However, the court stressed the importance of adhering to procedural safeguards and ensuring that the provisional attachment was not used as a tool for harassment.

Conclusion:
The court disposed of the petition by directing the respondents to complete the investigation within three months and to ensure compliance with procedural requirements. The court upheld the provisional attachment, noting that it was based on the need to protect government revenue, but emphasized that the attachment should not be prolonged unduly and should be lifted if the investigation was not completed within the specified period. The court also highlighted the necessity of providing the petitioners with an opportunity to be heard and to file objections against the provisional attachment.