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2025 (4) TMI 1163 - HC - GSTProvisional attachment of bank account of petiitoner - evasion of GST - HELD THAT - A perusal of the Panchnama would show that the same was a surprise investigation which was conducted. On the basis of certain records produced by the Petitioner s officials a prima facie estimation has been made that there is a mis-match. The amount of stock was higher than what was declared in terms of the records of the Petitioner company - It is to be noted that a period of more than 16 months has lapsed since the issuance of the Panchnama and one year has elapsed since the passing of the impugned order dated 28th March 2024. As per the impugned order the alleged evasion of GST is to the amount of Rs. 15.09 crores. Even if this amount is taken into consideration it cannot be said that the entire amount would be payable immediately. The issue relating to evasion has to be adjudicated in accordance with law. Until then the Petitioner s business cannot be prejudiced by complete attachment of bank accounts. The Petitioner is a running concern and as per the accounts which have been placed on record it is conducting business and paying substantial amounts of taxes. The details of the assets have also been given in the said certificate. The said Chartered Accountant s certificate along with the additional documents is taken on record - it would be sufficient at this stage if 10% of the amount can be secured by way of minimum balance in the bank account of the Petitioner. Conclusion - The issue relating to evasion has to be adjudicated in accordance with law. Until then the Petitioner s business cannot be prejudiced by complete attachment of bank accounts. Petition disposed off.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court include:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Justification for Provisional Attachment under Section 67 of the CGST Act The legal framework governing provisional attachment is set out under Section 67 of the CGST Act, 2017, which permits provisional attachment of property to protect the interests of revenue where there is reason to believe that any tax has been evaded. The procedure is further regulated by Rule 159(1) of the CGST Rules, 2017. The DGGI conducted a search and seizure operation at the Petitioner's premises and recorded a Panchnama on 13th December 2023. Based on a prima facie assessment, the DGGI concluded that there was clandestine removal of goods leading to GST evasion amounting to Rs. 15.09 crores. This opinion was supported by a voluntary statement of the Petitioner's Director admitting the evasion and inability to pay the amount. Consequently, the DGGI issued a provisional attachment order (Form GST DRC-22) on 18th December 2023, attaching the Petitioner's bank account. The Court noted that the impugned order complied with the procedural requirements under Section 83 of the CGST Act and Rule 159(1) of the CGST Rules, and that the Petitioner is a taxable person under the GST regime. However, the Court also observed that the basis for the alleged evasion was an estimation by officials without detailed adjudication, and no show cause notice had been issued even after more than 16 months since the Panchnama and over a year since the attachment order. The Court recognized that while the DGGI has a statutory right to provisionally attach property to protect revenue, the attachment must be balanced against the Petitioner's right to conduct business and the requirement of due process. Issue 2: Sufficiency and Nature of Evidence Supporting Attachment The DGGI's case relied primarily on the discrepancy between physical stock and registered accounts, ascertained through a surprise inspection and eye-estimation by officials. The Panchnama recorded that excess stock was found unaccounted for in the books, and the Petitioner's Director admitted evasion in a voluntary statement. The Petitioner challenged the evidentiary basis, contending that the assessment was speculative and not supported by concrete proof. It was also pointed out that substantial GST and Income Tax payments had been made over the past three years without delay or default, indicating compliance with tax obligations. The Court noted that the impugned order itself acknowledged the Petitioner's compliance history and payment of large sums of GST and Income Tax, as well as the company's role in providing employment and economic activity. Given the preliminary nature of the evidence and the absence of adjudication, the Court found that the attachment could not be sustained in a manner that would cripple the Petitioner's business. Issue 3: Procedural Compliance and Due Process The Petitioner emphasized that no show cause notice or formal proceedings have been initiated despite the attachment order being over a year old. The DGGI submitted that a show cause notice is likely to be issued shortly and that the statutory period for issuance is three years. The Court underscored the importance of procedural fairness and timely adjudication, observing that prolonged attachment without initiation of proceedings causes undue hardship and prejudice to the Petitioner. Issue 4: Protection of Petitioner's Business and Financial Interests The Petitioner argued that the attachment of its bank account, which held approximately Rs. 2.75 crores, caused severe financial difficulties and threatened the viability of its ongoing business operations. The Court took note of the Petitioner's status as a running concern engaged in manufacturing and trading of steel products, with substantial tax compliance and employment generation. In balancing the revenue protection with the Petitioner's business interests, the Court considered the net worth of the Petitioner's Directors and related persons, as certified by a Chartered Accountant, totaling over Rs. 50 crores in movable and immovable assets. The Court concluded that it was reasonable to allow the Petitioner to operate its bank account subject to maintaining a minimum balance as security to safeguard revenue interests. Issue 5: Quantum of Security to be Maintained Given the alleged GST evasion amount of Rs. 15.09 crores, the Court directed that the Petitioner's bank account maintain a minimum credit balance of Rs. 1.5 crores, representing approximately 10% of the disputed amount. This condition was intended to strike a balance between protecting the revenue and allowing the Petitioner to continue business operations without complete financial paralysis. Issue 6: Restrictions on Creation of Third-Party Interest in Immovable Property The Court further directed that no third-party interest shall be created in the Petitioner's residential property situated at Ghaziabad until the final adjudication of the case. This was to prevent dissipation or encumbrance of assets that could frustrate recovery of revenue if the Petitioner is ultimately found liable. 3. SIGNIFICANT HOLDINGS The Court held that while provisional attachment under Section 67 of the CGST Act is a valid measure to protect revenue interests, it must be exercised with due regard to the Petitioner's right to conduct business and procedural safeguards. It was emphasized that: "The issue relating to evasion has to be adjudicated in accordance with law. Until then, the Petitioner's business cannot be prejudiced by complete attachment of bank accounts." The Court established the principle that provisional attachment should not cause irreparable harm to a running business, especially where the evidence is prima facie and no final adjudication has been made. The final determination was that the Petitioner's bank account would continue to be provisionally attached but subject to maintaining a minimum balance of Rs. 1.5 crores, allowing the Petitioner to operate the account freely beyond this threshold. Additionally, the Court restrained creation of any third-party interest in specified immovable property pending final orders. These directions reflect a balanced approach that protects revenue while safeguarding the Petitioner's legitimate business interests and ensuring procedural fairness in tax enforcement actions.
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