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TMI Blog2024 (7) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... the affidavit-in-reply to the effect that the petitioner has indulged into bogus billing by availing the ITC of more than Rs. 76 crore. Therefore, considering such facts, it cannot be said that the Commissioner has failed to form an opinion on the basis of tangible material that the petitioner is likely to be subject to demand which would be more than the value of the immovable properties and therefore it is necessary so to do for the purpose of protecting the interest of the Government revenue, provisional attachment of the movable property was also required. It cannot be said that the respondents have committed breach of provision of Section 83 of the Act which is intended to safeguard the interest of the revenue which cannot be said to any harassment to the petitioner as tried to be demonstrated. In the facts of the case, it cannot be said that the respondents have issued provisional attachment order over the movable properties with a view to harass the petitioner. The petitioner in the facts of the case appears to have indulged in the transaction of the fraudulent invoices resulting into loss of revenue by utilizing the ITC of more than Rs. 76 crore. Thus, no interference is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eable properties including factory land, factory building, plant and machineries and 2 residential flats; and release the attachment over moveable properties including stock lying at the premises, 2 current bank accounts, fixed deposit and all the debtors' balances and return 2 mobile mobile phones being Apple i-phone 11 Pro Max (512 GB) and Infinixhot 30i (128 GB). d. A writ of mandamus, or any other appropriate writ, order and/or directions in the nature of mandamus to allow protection to petitioner in any further proceedings consequent to search; e. A writ of Mandamus or writ, order, or direction in the nature of Mandamus directing the respondents to carry out any further Summons through in camera proceedings or proceedings in front of Advocate; f. Any other and further relief deemed just and proper be granted in the interest of justice; g. To provide for the cost of this petition. 3. The brief facts of the case are has under: 3.1. The petitioner, a sole proprietorship firm engaged in the business of trading and processing of copper items, having its principal place of business at Plot nos. 1,2,3 Opp. Pipe Factory, Kadodara Bardoli Road, Palsana, Surat-394315 and is register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne pocket diary as per Order of Seizure in Form GST INS-02 dated 16.09.2023 and attached stock amounting to Rs. 1,35,020/- as per Order of Prohibition in Form GST INS-03 dated 16.09.2023. 3.7 Further, an arrest memorandum was issued by Assistant Commissioner-3, Enforcement, Division-5, Vadodara and the proprietor was arrested at 04:30 p.m. on 16.09.2023. The investigation continued and eventually the Respondent concluded that the petitioner has obtained bogus ITC of Rs. 76.68 crores. He was released on bail vide order dated 11.12.2023 in Criminal Misc. Application No. 21834 of 2023 by this Court. 3.8. On getting bail, the petitioner immediately approached the tax consultants to seek further assistance and accordingly filed the request letter on 03.01.2024 for copy of panchnama, statement recorded, documents seized and requested to return the mobile phones seized during the search proceedings. Further, the petitioner also filed an application in Form GST DRC-22A for release of provisional attachment over the assets as it adversely hampers the business. Moreover, the Petitioner also obtained the valuation report for fair market value of factory land and two residential premises, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was submitted that the petitioner is ready and willing to continue with the attachment over the immovable properties however the attachment of the stock and the debtors amounting to Rs. 4,58,21,834/- as per order dated 14.09.2023 is not required and the petitioner maybe permitted to do the business in absence of any determination of the tax liability by the respondent authority. 7. Learned Senior Advocate Mr. Soparkar relied upon the Circular dated 23.02.2021 issued by the CBEC and more particularly para no. 3.4.5 of the Circular which provides as under: As far as possible, it should also be ensured that such attachment does not hamper normal business activities of the taxable person. This would mean that raw materials and inputs required for production or finished goods should not normally be attached by the Department. 8. It was therefore submitted that provisional attachment over plant and machinery, bank account, stock and debtors is contrary to the circular which is binding upon the respondent authorities in as much as such assets are essential for day to day operations of running the business by the petitioner. 9. Learned Senior Advocate Mr. Soparkar also relied upon Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uraged. Instances are not wanting where bloated and doubtful claims are realized by unscrupulous plaintiffs, by obtaining orders of attachment before judgment and forcing the defendants for out of court settlements, under threat of attachment. 6. A defendant is not debarred from dealing with his property merely because a suit is filed or about to be filed against him. Shifting of business from one premises to another premises or removal of machinery to another premises by itself is not a ground for granting attachment before judgment. A plaintiff should show, prima facie, that his claim is bona fide and valid and also satisfy the court that the defendant is about to remove or dispose of the whole or part of his property, with the intention of obstructing or delaying the execution of any decree that may be passed against him, before power is exercised under Order 38, Rule 5 CPC. Courts should also keep in view the principles relating to grant of attachment before judgment [internal citation omitted]. 31. A body of precedent has emerged in the High Courts on the exercise of the power under Section 83 of the CGST Act (akin to the State GST Act). The shared learning which emerges from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry proceedings. (7) The authority before exercising power under Section 83 of the Act for provisional attachment should take into consideration two things: (i) whether it is a revenue neutral situation. (ii) the statement of output liability or input credit . Having regard to the amount paid by reversing the input tax credit if the interest of the revenue is sufficiently secured, then the authority may not be justified in invoking its power under Section 83 of the Act for the purpose of provisional attachment. (emphasis supplied) 41. Sub-Section (1) of Section 83 can be bifurcated into several parts. The first part provides an insight on when in point of time or at which stage the power can be exercised. The second part specifies the authority to whom the power to order a provisional attachment is entrusted. The third part defines the conditions which must be fulfilled to validate the power or ordering a provisional attachment. The fourth part indicates the manner in which an attachment is to be leveled. The final and the fifth part defines the nature of the property which can be attached. Each of these special divisions which have been explained above is for convenience of exposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econd, the formation of opinion before ordering a provisional attachment; third the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue; fourth, the issuance of an order in writing for the attachment of any property of the taxable person; and fifth, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of attachment. Each of these components of the statute are integral to a valid exercise of power. In other words, when the exercise of the power is challenged, the validity of its exercise will depend on a strict and punctilious observance of the statutory pre-conditions by the Commissioner. While conditioning the exercise of the power on the formation of an opinion by the Commissioner that for the purpose of protecting the interest of the government revenue, it is necessary so to do , it is evident that the statute has not left the formation of opinion to an unguided subjective discretion of the Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue. 49. By utilizing the expressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar provision contained in Section 4536 of the Gujarat Value Added Tax Act 2003, one of us (Hon ble Mr Justice MR Shah) speaking for a Division Bench of the Gujarat High Court in Vishwanath Realtor v State of Gujarat observed: 8.3. Section 45 of the VAT Act confers powers upon the Commissioner to pass the order of provisional attachment of any property belonging to the dealer during the pendency of any proceedings of assessment or reassessment of turnover escaping assessment. However, the order of provisional attachment can be passed by the Commissioner when the Commissioner is of the opinion that for the purpose of protecting the interest of the Government Revenue, it is necessary so to do. Therefore, before passing the order of provisional attachment, there must be an opinion formed by the Commissioner that for the purpose of protecting the interest of the Government Revenue during the pendency of any proceedings of assessment or reassessment, it is necessary to attach provisionally any property belonging to the dealer. However, such satisfaction must be on some tangible material on objective facts with the Commissioner. In a given case, on the basis of the past conduct of the dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent was maintainable; (iii) The High Court has erred in dismissing the writ petition on the ground that it was not maintainable; (iv) The power to order a provisional attachment of the property of the taxable person including a bank account is draconian in nature and the conditions which are prescribed by the statute for a valid exercise of the power must be strictly fulfilled; (v) The exercise of the power for ordering a provisional attachment must be preceded by the formation of an opinion by the Commissioner that it is necessary so to do for the purpose of protecting the interest of the government revenue. Before ordering a provisional attachment the Commissioner must form an opinion on the basis of tangible material that the assessee is likely to defeat the demand, if any, and that therefore, it is necessary so to do for the purpose of protecting the interest of the government revenue. (vi) The expression necessary so to do for protecting the government revenue implicates that the interests of the government revenue cannot be protected without ordering a provisional attachment; (vii) The formation of an opinion by the Commissioner under Section 83 (1) must be based on tangible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicants, more particularly, raw material and the finished goods are valuables which are otherwise necessary for running of the business of the applicants. Even operating the demat account and current account are essentially required for the routine business of the writ applicants. Time and again, this Court as well as even the instructions issued by the higher authority of the respondents, has directed the proper officer to ensure that their action of the provisional attachment should not hamper normal business activities of the taxable person. Even thereafter this Court vide judgment dated 27.01.2022 passed in Special Civil Application No. 188 of 2022 in the case of M/s. Utkarsh Ispat LLP Vs. State of Gujarat had an occasion to deal with the similar facts whereby the respondent authorities have provisionally attached goods, stock and receivables and also bank accounts. This Court did not approve the provisional attachment of the goods, stock and receivables more particularly, when the entire stock and receivables have been pledged and a floating charge has been created in favour of the Kalupur Commercial Bank Limited for the purpose of availing the cash credit facility with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxmann.com 80 (Gujarat) wherein it is held as under: 8. Before parting, the court deems it fit to caution the concerned authorities that while exercising powers under section 83 of The GGST Act, the authorities should try to balance the interest of the Government revenue as well as a dealer to ensure that while the interest of the revenue is safeguarded, the dealer is also in a position to continue with his business, because it is only if the dealer continues with the business that he would generate more revenue. The authorities should keep in mind that bringing the business of a dealer to a halt does not in any manner serve the interest of the revenue. Therefore, while taking action under section 83 or 67 (2) of the GGST Act, the concerned authorities should take care to ensure that equities are maintained and while securing the interest of the revenue, they should attempt to see that the dealer is in a position to continue with the business. This court does not intend to lay down any absolute proposition that in no case drastic action should be taken, but that the respondents should consider the background and history of the dealer as well as his financial position to ascertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it is found that only to claim ITC purchases were shown without any receipt of the goods. The modus operandi of the petitioner was found that the goods were purchased from unregistered person at low price and merely to get benefit of ITC, fabricated bills and invoices were issued by 79 suppliers. 18. Learner AGP Ms.Shrunjal Shah referred to the statements of the transporters who have accepted that the lorry receipts produced by the petitioner are also fabricated. It was therefore submitted that provisional attachment order in Form DRC-22 is passed after considering the objections raised by the petitioners wherein it is observed that the immovable properties of the petitioner are not sufficient to fulfill the liability, which may arise and therefore as per the Circular dated 23.02.2021, the respondents were justified in passing the Provisional Attachment Order on movable properties in addition to the immovable properties as the same is not sufficient to protect interest of the revenue. 19. It was pointed out that even if the valuation report submitted by the petitioners for immovable properties may be considered, still the immovable properties of the petitioners are not sufficient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliance placed by the petitioners on the decision of the Radha Krishan Industries (Supra) would not be applicable in view of the facts of the case of the petitioners. 25. Learned AGP Ms. Shah pointed out that the facts of the case before the Hon ble Supreme Court are totally different than the facts of the case of the petitioners and referred to following facts recorded by the Hon ble Supreme Court in the decision as under: 4. The facts in the context of which this case arises are thus: the appellant manufactures lead according to the specific requirements of its clients, and has a factory at village Meerpur Gurudwara, Kala-Amb in the District of Sirmaur of Himachal Pradesh. The appellant has been in the same line of business since 2008. Upon the introduction of the Goods and Services tax, the appellant third respondent HPGST Act HPGST Rules GST migrated to and was registered under GST - GSTIN No. O2AAKFR7402H2ZE - with effect from 1 July 2017. 5. On 3 October 2018, a notice was issued to the appellant under Section 74 of the HPGST Act and the Central Goods and Services Tax Act by the third respondent requiring it to appear on 9 October 2018 and produce (i) invoices pertaining to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious firms without actual movement of goods GM Powertech had issued invoices to various recipients in Himachal Pradesh including the appellant. On 4 July 2020, the third respondent issued an intimation to the appellant under Section 74 (5) of the HPGST Act of tax ascertained as being payable, advising it to pay tax, interest SCN Form GST DRC-01A and penalty of Rs. 5.03 crores. The appellant was given an opportunity to file its submissions against the ascertainment of the amount by 4 August 2020. 10. A tax liability of Rs 39.48 crores was confirmed against GM Powertech on the conclusion of the proceedings against it. GM Powertech was found to have no business establishment or property in Himachal Pradesh and the case was considered to fall into the category of a serious tax fraud. 26. Referring to the above facts it was submitted that in the facts of the case before the Apex Court, the detection case was registered against the GM Powertech one of the suppliers of the appellant and on investigation, tax evasion was detected and the GM Powertech was found to have claimed and utilized ITC against the invoices issued by fake fictitious forms without actual movement of the goods and GM P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion that a provisional attachment was necessary to safeguard the interest of the revenue. No tangible material has been disclosed. The record clearly reveals a breach of the mandatory pre-conditions for the valid exercise of powers under Section 83 of the HPGST Act. 70. Clause (a) of sub-Section (6) provides that no appeal shall be filed without the payment in full, of such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order as is admitted. In addition, under clause (b), ten per cent of the remaining amount of tax in dispute arising from the order has to be paid in relation to which the appeal has been filed. Upon the payment of the amount under sub-Section (6) the recovery proceedings for the balance are deemed to be stayed. Thus, in any event, the order of provisional attachment must cease to subsist. The appellant, having filed an appeal under Section 107, is required to comply with the provisions of sub-Section (6) of Section 107 while the recovery of the balance is deemed to be stayed under the provisions of sub-Section (7). As observed hereinabove and under Section 83, the order of provisional attachment may be passed during the pende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is apparent from the facts that the petitioner has indulged in to bogus billing and therefore without considering the veracity of the same as investigation/inquiry is undergoing, it is necessary to find out as to whether there is any basis to pass the provisional attachment of the movable property in addition to the immovable properties already attached by the respondent Department while invoking provisions of Section 83 of the Act. 29. On perusal of the impugned order read with satisfaction note, the respondent authority has come to the conclusion that the immovable property of the petitioner is not sufficient to protect the interest of the revenue, which is further fortified from the averments made in the affidavit-in-reply to the effect that the petitioner has indulged into bogus billing by availing the ITC of more than Rs. 76 crore. Therefore, considering such facts, it cannot be said that the Commissioner has failed to form an opinion on the basis of tangible material that the petitioner is likely to be subject to demand which would be more than the value of the immovable properties and therefore it is necessary so to do for the purpose of protecting the interest of the Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CGST Act. As there is no supply by A to B in respect of such tax invoice in terms of the provisions of section 7 of CGST Act, no tax liability arises against A for the said transaction, and accordingly, no demand and recovery is required to be made against A under the provisions of section 73 or section 74 of CGST Act in respect of the same. Besides, no penal action under the provisions of section 73 or section 74 is required to be taken against A in respect of the said transaction. The registered person A shall, however, be liable for penal action under section 122 (1) (ii) of the CGST Act for issuing tax invoices without actual supply of goods or services or both. 2. A registered person A has issued tax invoice to another registered person B without any underlying supply of goods or services or both. B avails input tax credit on the basis of the said tax invoice. B further issues invoice along with underlying supply of goods or services or both to his buyers and utilizes ITC availed on the basis of the above mentioned invoices issued by A , for payment of his tax liability in respect of his said outward supplies. Whether B will be liable for the demand and recovery of the said IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit wrongly/ fraudulently availed by B in such case or tax liability in respect of the said outward transaction by B to C is required to be made from B under the provisions of section 73 or section 74 of CGST Act. However, in such cases, B shall be liable for penal action both under section 122 (1) ((ii) and section 122 (1) (vii) of the CGST Act, for issuing invoices without any actual supply of goods and/or services as also for taking/ utilizing input tax credit without actual receipt of goods and/or services. 2. The fundamental principles that have been delineated in the above scenarios may be adopted to decide the nature of demand and penal action to be taken against a person for such unscrupulous activity. Actual action to be taken against a person will depend upon the specific facts and circumstances of the case which may involve complex mixture of above scenarios or even may not be covered by any of the above scenarios. Any person who has retained the benefit of transactions specified under sub-section (1A) of section 122 of CGST Act, and at whose instance such transactions are conducted, shall also be liable for penal action under the provisions of the said sub-section. It ..... 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