RELEVANT STATUTORY PROVISIONS
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) Every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made under sub-section (1).
Proposed Amendment vide Finance Bill 2021 (Yet to be notified): In section 83 of the Central Goods and Services Tax Act, for sub-section (1), the following sub-section shall be substituted, namely:––
“(1) Where, after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV, 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 or any person specified in sub-section (1A) of section 122, in such manner as may be prescribed.”.
Rule 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.
DISSECTION
Let’s dissect the provision and analyze it.
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.
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 exposition. While they are not watertight compartments, ultimately and together they aid in validating an understanding of the statute.
Each of the above five parts is now interpreted and explained below:
(i) The power to order a provisional attachment is entrusted during the pendency of proceedings under any one of six specified provisions: Sections 62, 63, 64, 67, 73 or 74. In other words, it is when a proceeding under any of these provisions is pending that a provisional attachment can be ordered;
(ii) The power to order a provisional attachment has been vested by the legislature in the Commissioner;
(iii) Before exercising the power, the Commissioner must be “of the opinion that for the purpose of protecting the interest of the government revenue, it is necessary so to do”;
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. Necessity postulates that the interest of the revenue can be protected only by a provisional attachment without which the interest of the revenue would stand defeated. Necessity, in other words, postulates a more stringent requirement than a mere expediency.
These expressions in regard to both the purpose and necessity of provisional attachment implicate the doctrine of proportionality. Proportionality mandates the existence of a proximate or live link between the need for the attachment and the purpose which it is intended to secure. It also postulates the maintenance of a proportion between the nature and extent of the attachment and the purpose which is sought to be served by ordering it. Moreover, the words embodied in sub-Section (1) of Section 83, as interpreted above, would leave no manner of doubt that while ordering a provisional attachment the Commissioner must in the formation of the opinion act on the basis of tangible material on the basis of which the formation of opinion is based in regard to the existence of the statutory requirement
In a given case, on the basis of the past conduct of the dealer and on the basis of some reliable information that the dealer is likely to defeat the claim of the Revenue in case any order is passed against the dealer and/or the dealer is likely to sale his properties and/or sale and/or dispose of the properties and in case after the conclusion of the assessment/reassessment proceedings, if there is any tax liability, the Revenue may not be in a position to recover the amount thereafter, in such a case only, however, on formation of subjective satisfaction/opinion,
(iv) The order for attachment must be in writing;
(v) The provisional attachment which is contemplated is of any property including a bank account belonging to the taxable person; and
(vi) The manner in which a provisional attachment is levied must be specified in the rules made pursuant to the provisions of the statute.
PENDENCY OF PROCEEDINGS
Pendency of specified proceeding is sine qua non for invocation of section 83. If the proceedings has come to a logical end or has yet to be commenced, section 83 cannot be invoked.
In following case it has been held by honble Gujarat High Court that once search operation has been completed no action can be taken u/s 83
Kushal Ltd Vrs UOI Special Civil Appln 19533 of 2019 dated 17.12.2019 (Operation of this judgment has been stayed by Honble Apex Court)
Proex Fashion Vrs GOI WP 11245 of 2020 dated 06.01.2021 (Del HC)
A Division Bench of the Bombay High Court, in Kaish Impex Private Limited vs. Union of India & Ors. 2020 SCC online Bom 125 vide Para 19 has held as follows with regard to the scope of Section 83
Under Section 83, the legislature has no doubt conferred power on the authorities to provisionally attach bank accounts to safeguard government revenue, but the same is within well-defined ambit. Only upon contingencies provided therein that the power under section 83 can be exercised. This power is to be used in only limited circumstances and it is not an omnibus power.”
In the case of UFB Global Education Vr UOI CWP 11961 of 2020 dated 09.09.2020, honble Punjan & Haryana High Court has held that once proceeding u/s 67 is over no action can be taken u/s 83.
PENDENCY OF PROCEEDINGS AGAINST OTHERS
If proceeding is pending against others, no action is contemplated u/s 83.
Hon’ble Supreme Court in paragraph 74 of the decision in Radha Krishan Industries, proceedings initiated against an entity different from the entity whose bank account is attached would not clothe the concerned officer, otherwise empowered to order attachment of property, to invoke Section 83 without the jurisdictional fact being present. If so invoked, the order has to be held ultra vires Section 83.
It has further been fortified from the following decisions:
Dharmesh Gandhi Vrs Asst Commisioner WP 14725 of 2021 dated 07.09.2021 (Bombay HC)
Bhavesh Kirtibhai Kalani Vrs UOI Spl Civil Appln 16360 of 2020 dated 19.04.2021 (Guj HC)
PENDENCY OF PROCEEDINGS UNDER OTHER SECTIONS
Invocation of power as contemplated in section 83 is conditional. Only upon fulfillment of those conditions, sec 83 could be invoked. Section 83 has laid down six sections, whose pendency of proceeding could lead to invocation of section 83. Meaning thereby, for sections other than those six, no power can be invoked.
Kanal Enterprise Vrs State of Gujrat Spl Covil Appln. 17673 of 2019 dated 11.03.2020
Proex Fashion Vrs GOI WP 11245 of 2020 dated 06.01.2021 (Del HC)
INVALID PENDENCY OF PROCEEDINGS
In the case of Cengres Tiles Vrs State of Gujrat Spl Civil Appln 19180 of 2018 dated 19.06.2019, it has been held by honble Gujrat High Court that no provisional attachment can be invoked for erroneous acquisition of jurisdiction by department. In this particular case, notice u/s 46 was not issued to the petioner prior to issuance of notice u/s 62, which proceeding was still pending.
PROVISIONAL ATTACHMENT IN CASE OF IMPENDING PROCEEDING
Whether it is permissible to attach properties provisionally in the case of impending proceeding u/s 74 of the CGST Act?
Honble Karnataka High Court in the case of Sterne India Pvt Ltd Vrs UOI WP 12875 of 2020 dated 08.09.2021, vide para 31, has held as under:
In the present case, it must be noticed that the taxable entity to which the proceedings were taken out is an entity other than the petitioner and in the context of which search has been conducted with respect to the petitioner. Admittedly, no proceedings have been initiated under Section 74 of CGST Act as against the petitioner till date. What must also be noticed is that though the statement of objections of the respondent Authority seeks to make out a case that the proceedings under Section 74 of CGST Act are sought to be instituted and in the context of which the provisional attachment under Section 83 of CGST Act is resorted to, the impending proceedings under Section 74 of the CGST Act cannot be a ground to exercise power under Section 83 for the provisional attachment. Any exercise of power as may be permitted statutorily which has an adverse consequence on the petitioner, would have to be strictly construed.
MAINTENABILITY OF WRIT – AVAILABILITY OF ALTERNATE REMEDY?
Section 107 of the CGST Act 2017 deals with appeals. Section 107(1) provides as follows:
“107. Appeals to Appellate Authority.—(1) Any person aggrieved by any decision or order passed under this Act or the Central Goods and Services Tax Act, 2017 (No.12 of 2017) by an adjudicating authority may appeal to such Appellate Authority as may be prescribed within three months from the date on which the said decision or order is communicated to such person.”
Sub-Section (1) of Section 107 makes it abundantly clear that an appeal to the Appellate Authority is available against a decision or order passed under the CGST Act by an “adjudicating authority.
The expression ‘adjudicating authority’ is defined by Section 2(4) in the following terms:
“(4) “adjudicating authority” means any authority, appointed or authorized to pass any order or decision under this Act, but does not include the Commissioner, Revisional Authority, the Authority for Advance Ruling, the Appellate Authority for Advance Ruling, the Appellate Authority and the Appellate Tribunal;”
From the above definition, it is evident that the expression ‘adjudicating authority’ does not include among other authorities, the Commissioner.
This being the position, clearly the order passed Commissioner is not subject to an appeal under Section 107(1) and the only remedy that is available is in the form of the invocation of the writ jurisdiction under Article 226 of the Constitution. Such position will not be altered even if Commissioner delegates his power u/s 5(3) to any of his subordinates.
Honble Apex Court in the case of Radha Krishan Industries Vrs State of Himachal Pradesh, Civil Appeal No. 1155 of 2021 dated 20.04.2021, has made it abundantly clear, vide para 59 to 63 of its order that only remedy available in case of provisional attachment is by way of Writ under article 226 of the constitution.
OPINION – BE OF COMMISSIONER ONLY
Section 83 makes it abundantly clear that it is the Commissioner’s opinion which is relevant. The Legislature has thought fit to confer this power upon the Commissioner. Whether such power conferred upon the Commissioner by the legislature could have been delegated
to the three subordinate officers in exercise of power under subsection (3) of Section 5. Reliance is placed on the judgments in the case of Valerious Industries Vrs UOI.
PERIOD OF 7 DAYS TO FILE OBJECTION – WHETHER DIRECTORY OR MANDATORY?
Rule 159(5) provides that 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.
Under the CGST Act or Rules, there is no provision which mandates the filing of objections to provisional attachment within 7 days. No consequence of delay in filing objections is provided. Moreover, the revenue does not suffer any adverse consequence on account of delay on the part of the objector in moving the objections which is beyond the period of 7 days of the date of the provisional attachment.
Honble Delhi High Court in the case of R R India P Ltd Vrs UOI WP© 1597/2020 dated 17.02.2020 vide Para 10 of its order observed as under:
The decision in Sambha Ji Vs. Gangabai, 2009 (240) ELT 161 (SC). (supra) is clearly attracted to the present case. Moreover, it is the objector who would suffer adverse consequence on account of delay on his part in raising the objections. The respondents do not suffer any adverse consequence on account of delay, if any, in moving the objections. We, therefore, hold that the period of 7 days prescribed in
Rule 159(5) of the CGST Rules for moving the objections to the provisional attachment is merely directory and not mandatory. Objections raised by the petitioner, therefore, could not be rejected on that ground alone.
OBJECTION MUST BE DEALT WITH A REASONED ORDER
The Commissioner is duty bound to deal with the objections to the attachment by passing a reasoned order which must be communicated to the taxable person whose property is attached;
Honble Apex Court in the case of Radha Krishan Industries Vrs State of Himachal Pradesh 2021 SCC Online SC 334, has made it abundantly clear, vide para 56 of its order that
The Commissioner who hears the objections must pass a reasoned order either accepting or rejecting the objections. To allow the Commissioner to get by without passing a reasoned order will make his decision subjective and defeat the purpose of subjecting it to judicial scrutiny. The Commissioner must deal with the objections and pass a reasoned order indicating whether, and if not, why the objections are not being accepted.
NO PROVISIONAL ATTACHMENT TO PROPERTIES OF PERSONS OTHER THAN TAXABLE PERONS
Any property including bank account of the taxable person can be attached against whom the proceedings under the sections mentioned above are initiated. Section 83 does not provide for an automatic extension to any other taxable person from an inquiry specifically launched against a taxable person under these provisions. Section 83 uses the expression ‘taxable person’ whose property could be provisionally attached. Reliance is placed on the decision in the case of Gehna Trading LLP Vrs UOI WP 167 of 2020 dated 30.01.2020; Kaish Impex Private Limited Vrs UOI WP 3145 of 2019 dated 17.01.2020
Honble Delhi High Court in the case of Roshni Sana Jaiswal Vrs CCT WPC 2348 of 2021 dated 12.05.2021, in Para 5.3 observed as under:
Subsection 1 of Section 83 of the Act in no uncertain terms states that provisional attachment can be ordered only qua property, including bank account, belonging to the taxable person. Furthermore, the definition of the ‘taxable person’, as set out in Section 2(107) of the Act, provides that only that person can be a taxable person, who is registered or liable to be registered as per the Act. It is not even the case of the respondent that the petitioner is either registered or was liable to be registered in terms of the provisions of Section 2(107) of the Act. Therefore, according to us, the proceedings must fail on this score alone.
CASH CREDIT ACCOUNT CANNOT BE ATTACHED
Honble Gujrat High Court in the case of Vinod Kumar Murlidhar Chechani Vrs State of Gujrat Civil, Appl 12498 of 2020 has held that
Cash Credit Account cannot be ordered to be attached. In other words, the Cash Credit Account is an account, which enables the assessee to borrow the money from the bank for the purpose of its business. Any money, therefore, which the bank may make available to the assessee would necessarily be in the nature of a loan or cash credit facility. The view taken by our High Court in such circumstances is that, the bank and the assessee will not have the debtor – creditor relationship. Reliance is also placed on the decision in the case of RCI Industries & Technologies Ltd CWP 18523 of 2019 dated 18.02.2020.
NO CONTINUANCE OF ATTACHMENT BEYOND ONE YEAR
Subsection (2) of section 83 of CGST Act provides as under: Every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made under sub-section (1).
It is crystal clear from the foregoing provisions that the life of a provisional attachment ceases upon expiry of a period of one year.
Honble Calcutta High Court in case of Amazon Steel P Ltd Vrs UOI vide para 11 of its order has held as under:
Upon hearing both parties on the second issue, it is obvious that the authorities have acted in a blatantly highhanded and illegal manner by keeping the provisional attachments in a state of continuance for the period from 5th June, 2019 (when the first order of provisional attachment ceases to operate) till 31st October, 2019 (when fresh order for provisional attachment was passed). Section 83(2) is crystal clear that the provisional attachment shall cease upon expiry of one year. It was therefore incumbent on the authorities to either release the provisional attachment by informing the bank or by issuing a fresh order of provisional attachment, if the law so allowed. The failure to do the above is nothing short of being an act of highhandedness. Such actions of the authorities is an obloquy and reprehensible.
CONCLUSION
In the words of Honble Apex Court, 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.
An attachment which is contemplated in Section 83 is, in other words, at a stage which is anterior to the finalization of an assessment or the raising of a demand. Conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power.
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