Provisional property attachment in terms of Section 83 of CGST Act

Issue: Whether Section 83 of CGST provides for provisional attachment of any property, including bank account of the taxable person during the course of Investigation i.e., before issuance of SCN /Assessment order/notice?

Discussion:

1. Before going into the said aspect it is required to examine the similar provisions in the pre-GST regime namely Section 11DDA of CEA and Section 73C of FA,1994 in Central Excise and Service Tax respectively. The same are reproduced here under:

SECTION 11DDA. Provisional attachment to protect revenue in certain cases. – (1) Where, during the pendency of any proceedings under section 11A or section 11D, the Central Excise Officer is of the opinion that for the purpose of protecting the interest of revenue, it is necessary so to do, he may, with the previous approval of the [Principal Commissioner of Central Excise or Commissioner of Central Excise], by order in writing, attach provisionally any property belonging to the person on whom notice is served under [* * *] section 11A or sub-section (2) of section 11D, as the case may be, in accordance with the rules made in this behalf under section 142 of the Customs Act, 1962 (52 of 1962).

SECTION 73C. Provisional attachment to protect revenue in certain cases. — (1) Where, during the pendency of any proceeding under section 73 or section 73A, the Central Excise Officer is of the opinion that for the purpose of protecting the interests of revenue, it is necessary so to do, he may, with the previous approval of the Principal Commissioner of Central Excise or Commissioner of Central Excise, by order in writing, attach provisionally any property belonging to the person on whom notice is served under sub-section (1) of section 73 or sub-section (3) of section 73A, as the case may be, in such manner as may be prescribed.

1.1 The procedure /guidelines prescribed under above said provisions are as extracted below:

1.1.1 In respect of Section 11DDA of CEA:-

Circular No. 874/12/2008-CX., dated 30-6-2008

F.No. 201/51/2004-CX-6

Subject : Instructions regarding Section 11DDA of the Central Excise Act, 1944.

I am directed to refer to the Section 11DDA of the Central Excise Act, 1944 (hereinafter referred to as “the Act”) inserted by the Taxation Laws (Amendment) Act, 2006, with effect from 13-7-2006. This section provides for provisional attachment of property for the purpose of protecting the interests of revenue during the pendency of any proceedings under Section 11A or Section 11D of the Act.

2. In this connection, the Law Ministry has advised that suitable guidelines should be issued to implement Section 11DDA of the Act. The following guidelines are, therefore, issued to maintain uniformity in its implementation by field formations :

(i) The proceedings for provisional attachment can be initiated only after issue of Show Cause Notice (SCN) under Section 11A or 11D of the Act.

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1.1.2 In respect of Section 73C of the Finance Act,1994:-

Circular No. 103/6/2008-S.T., dated 1-7-2008;

F.No. 137/120/2006-CX.4

Subject : Instructions regarding provisional attachment of property under section 73C of Finance Act, 1994 – Regarding

Section 73C of the Finance Act, 1994 (hereinafter referred to as the Act) provides for provisional attachment of property for the purposes of protecting the interests of revenue during the pendency of any proceedings under section 73 or section 73A of the Act.

2. In this connection the following guidelines are issued to maintain uniformity in its implementation by field formations.

(i) The proceedings for provisional attachment can be initiated only after issue of Show Cause Notice under section 73 or section 73A of the Act.

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1.2 From the above, it is clear that subject provisional attachment in terms of Section 11DDA and Section 73C can be made only after issuance of SCN.

2. In GST, Section 83 of CGSTA/SGSTA provides for such provisional attachment which reads as:

SECTION 83. Provisional attachment to protect revenue in certain cases. — (1) Where during the pendency of any proceedings under section 62 or section 63 or section 64 or section 67 or section 73 or section 74, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue, it is necessary so to do, he may, by order in writing attach provisionally any property, including bank account, belonging to the taxable person in such manner as may be prescribed.

2.1. The proper officer can assess the tax liability and pass ‘Assessment Orders’ under following provisions

(i) SECTION 62. Assessment of non-filers of returns:

(ii) SECTION 63. Assessment of unregistered persons

(iii) SECTION 64. Summary assessment in certain special cases

2.2 Further, Section 67 provides for inspection, search and seizure. Section 73/74 provides for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized.

2.3 The Government has prescribed the procedure for subject attachment vide Rule 159 of CGST Rules

159. Provisional attachment of property. — (1) Where the Commissioner decides to attach any property, including bank account in accordance with the provisions of section 83, he shall pass an order in FORM GST DRC-22 to that effect mentioning therein, the details of property which is attached.

(2) The Commissioner shall send a copy of the order of attachment to the concerned Revenue Authority or Transport Authority or any such Authority to place encumbrance on the said movable or immovable property, which shall be removed only on the written instructions from the Commissioner to that effect.

(3) Where the property attached is of perishable or hazardous nature, and if the taxable person pays an amount equivalent to the market price of such property or the amount that is or may become payable by the taxable person, whichever is lower, then such property shall be released forthwith, by an order in FORM GST DRC-23, on proof of payment.

(4) Where the taxable person fails to pay the amount referred to in sub-rule (3) in respect of the said property of perishable or hazardous nature, the Commissioner may dispose of such property and the amount realized thereby shall be adjusted against the tax, interest, penalty, fee or any other amount payable by the taxable person.

(5) Any person whose property is attached may, within seven days of the attachment under sub-rule (1), file an objection to the effect that the property attached was or is not liable to attachment, and the Commissioner may, after affording an opportunity of being heard to the person filing the objection, release the said property by an order in FORM GST DRC-23.

(6) The Commissioner may, upon being satisfied that the property was, or is no longer liable for attachment, release such property by issuing an order in FORM GST DRC-23.

2.4 The relevant portion of DRC-22 is reproduced below:

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Provisional attachment of property under section 83

It is to inform that M/s —————————- (name) having principal place of business at ——————— (address) bearing registration number as ———————— (GSTIN/ID), PAN ——— is a registered taxable person under the <<SGST/CGST>> Act. Proceedings have been launched against the aforesaid taxable person under section << —>> of the said Act to determine the tax or any other amount due from the said person. As per information available with the department, it has come to my notice that the said person has a –

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3. In pre-GST regime, there were no provisions similar to Sections 62,63 and 64 of CGST Act, wherein it provides for assessment of liability of Tax Payer by the proper officer in certain situations. However, provisions of Sections 73/74 of CGST Act were similar to those of Sections 11A of CEA and Section 73 of the FA,1994. The provisional attachment in terms of Section 11DDA of CEA or Section 73C of FA,1994, as the case may be, was allowed to be done only in cases where proceedings in terms of Section 11A of CEA or Section 73 of FA,1994 were pending. Does it mean that proceedings for determination of tax/duty due shall be treated as pending under the said section only after issuance of notices under said sections? Seems YES as seen from the guidelines issued by the Board for such attachments saying that actions to be initiated only after issuance of notices.

3.1 The another difference in GST when compared with the provisions of previous tax regime for such provisional attachment is that now, it is allowed to be done in additional situations like where proceedings are pending under Sections 62,63 and 64 (such assessments were not there in the previous regime) and also during the pendency of proceedings under Section 67.

3.1.1 Provisions of Section 67 are more or less similar to the provisions of Section 12F of CEA and Section 82 of FA,1994 though Section 67 provides additionally, for inspection and also prescribes procedure as to how to deal with the seized goods and records.

3.1.2 In terms of Rule 68 of CGSTR readwith Section 46, a notice in GSTR-3A would be issued to the Tax Payer (TP) who failed to filed the Returns to file the return. If the TP is failed to comply of filing return even then, proper officer would make the assessment under Section 62 In case the Taxable person to whom Assessment Order under Section 62(1) ibid is issued, files his return then the order issued under sec 62 shall be deemed to have been withdrawn as per Section 62(2).

3.1.3 A notice has to be issued to the tax payer in terms of Rule 100(2) of CGST Rules before passing Assessment under Section 63 ibid, which is answerable within 15 days.

3.1.4 Regarding assessment in terms of Section 64 ibid, after assessment is done under the said section, in terms of Section 64(2), the Additional Commissioner or Joint Commissioner, on an application made by the taxable person within thirty days from the date of receipt of order passed under sub-section (1) or on his own motion considers that such order is erroneous, he may withdraw such order and follow the procedure laid down in section 73 or section 74.

3.1.5 However, when the Assessment order is issued in terms of Sections 62, 63 and 64 the tax liability becomes recoverable as confirmed tax and as such the amount is recoverable in terms of Sections 78 and 79 after 3 months from the date of issue of order. Is provisional attachment is to safe guard the revenue during that period of three months only or for the period since initiation of proceedings for assessment under the said sections till such assessment reaches finality considering the same as pending of proceedings under those sections?. Later one appears correct but for the understanding given to the concept of pendency of proceedings under sections 73 or Section 11DDA ibid saying that only after issuance of notice under said provisions it can be said that the proceedings are pending under the said sections. If it is to be understood in line with previous regime, only after issuance of Assessment Orders under sections 62 and 64 and after issuance of notice under Sections 63 and 73/74, it can be treated as ‘pending of proceedings’ under those sections for the purpose of action under Section 83 ibid. Further, what is the meaning of ‘pending of proceedings under Section 67’ ? Any investigation initiated by way of Inspection/Search in terms of Section 67 ibid shall be considered as ‘pending of proceedings under Section 67’ to take action under Section 83? Or only in case of goods seized in terms of Section 67 the proceedings can be termed as ‘pending of proceedings under Section 67’ only to that extent of proceedings for confiscation under Section 130? It may not be so, as once goods are under seizure there is no need to go for provisional attachment of other properties except in cases where seized goods are released under bond. In any case why such action under Section 11DDA or Section 73C was not allowed in cases where proceedings under Section 12F of CEA and Section 82 of FA,1994 are pending. Is it a conscious decision to enable such action under section 83 ibid even in cases where investigation is pending. Another challenge to such understanding is that all the investigations need not emanate from the actions initiated under Section 67 alone. Even actions initiated under Section 70 through Summons mode may result in to finding of non-payment of tax. Section 70 action can be done consequent to visit under Section 71. Even audit under Sections 65/66 also result in to detection of non-payment of tax.

3.2 Another issue is that earlier actions under Section 11DDA of CEA or under Section 73C of FA was allowed in cases where proceedings are pending under Section 11D of CEA or Section 73A of FA,1994 respectively, to demand of the amounts collected in the name of duty/tax but not paid to the Government. Surprisingly, action under sec 83 of CGSTA is not allowed in the cases where proceedings are pending under Section 76. Section 76 provides for demand of amount which was collected as TAX in respect of the supplies irrespective of whether the same are taxable {like exempted or nil rated} or not (non-taxable) { like petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel }. It appears that non-covering of Section 76 cases for action under Section 83 is an omission unless it is a conscious decision of the Government.

Conclusion:

Unless the investigations initiated under Section 67 are intended to be considered as the ‘pending of proceedings under Section 67’, provisional attachment in terms of Section 83 should be taken only after issuance of notice under Sections 63 or 73/74 in normal demand cases. Similarly, such attachment shall be made only after issuance of Assessment Orders under Sections 62 and 64.

(Views expressed by the author are purely personal.)

(By C.Mallikarjun Reddy, Superintendent, Hyderabad GST zone; Mobile 7702620004; email-cmreddy.gst@gmail.com)