Analysis of Provisional Attachment of Property under GST : Now a days it is seen that department is commonly attaching bank accounts/ property of the taxable person by invoking the powers given in section 83 of the CGST Act.
Prior to amendment through Finance Act 2021, Extract of Section 83 is as below:
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).
The Finance Act 2021 has amended section 83(1), Amended Extract of Section 83(1) is as below:
Section 83 : Provisional attachment to protect revenue in certain cases.
(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.
Earlier to this amendment, Commissioner was having only power to attach bank property where there is any proceedings pending under the section 62 (Assessment of non-filers of return) or section 63 (Assessment of unregistered person) or section 64 (Summary assessment) or section 67 (Inspection, search and seizure cases) or section 73 (Determination of tax not paid or short paid other than reason of fraud etc. ) or section 74(Determination of tax not paid or short paid by way reason of fraud etc.)
The Commissioner is empowered to provisionally attach the property after the initiation of proceedings under Chapter XII Assessment, Chapter XIV Inspection, search, seizure and arrest and Chapter XV Demands & Recovery. Now the commissioner is having vast power as compared to earlier to provisionally attach of property.
Now this amendment has given power to commissioner to provisionally attach bank account, belonging of that taxable person and other person who retained the benefit of transactions covered under clause (i), (ii) , (vii) or clause (ix) of subsection (1) of section 122 of CGST Act.
Extract of Section 122 with respect to as below:
Section 122: Penalty for certain offences:
(1) Where a taxable person who –
(i)Supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply.
(ii)Issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made thereunder.
(iii)Takes or utilises input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made thereunder;
(iv)Takes or distributes input tax credit in contravention of section 20, or the rules made thereunder;
Extract of Rule 159 of CGST Rules 2017.
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.
After doing carefully analysis of section 83 read with rule 159 of CGST rules it is held that
(i) Before exercising the power under this section, there should be pending of proceedings under Chapter XII Assessment, Chapter XIV Inspection, search, seizure and arrest and Chapter XV Demands & Recovery.
(ii) An opinion has to be framed that for the purpose of protecting the interest of revenue, it is necessary to provisionally attach property of taxable person. For framing opinion, it is important that commissioner must exercise due diligence and duly consider as well as carefully examine all the facts of the case, including the nature of offence, amount of revenue involved, established nature of business and extent of investment in capital assets and reason to believe that taxable person, against whom the proceedings are pending, may dispose of or remove the property if not attached provisionally.
(iii) The basis on which commissioner has formed an opinion, should be duly recorded in file.
(iv) Remedy of attachment being, by its very nature, extraordinary has to be resorted to with utmost circumspection and with maximum care.
(v) An order has to be passed in form DRC-23 regarding the details of the property attached by the proper officer.
(vi) Taxable person, who property is attached, may file an objection to the effect that property was not liable for attachment, and the commissioner may after giving opportunity of being heard, release the said property in form DRC-23.
(vii) Value of attached property should be as near as possible to the estimated value of pending revenue against such person.
It is to be noted that as per rule 159 (2) of CGST rules, the commissioner is not required to serve the order in DRC-22 to the person whose property has been attached therefore it has been observed that due to non–communication of the order in DRC-22 to the concerned person, the beneficial right provided to the concerned person under rule 159 (5) cannot be exercised within reasonable period of time i.e. seven days from the date of attachment, not from the date of service of notice. Therefore the concerned person could not exercise the right.
Further to be noted that provisional attachment can be made only of the property belonging to the taxable person against whom the proceedings are pending. Taxable person has been defined in section 2 (107) of the CGST Act to mean a person who is registered or is liable to be registered under sections 22 or 24 of the CGST Act. Provisionally attachments of the property including bank accounts of the family members of the taxable person are not in justified in accordance with section 83 of the Act.
Hon’ble Division Bench of the Gujarat High Court in the matter of Valerius Industries V. Union of India and that of the Hon’ble Bombay High Court in the matter of AJE India Private Limited V. Union of India and Ors. decided that there cannot be an order direct furnishing of the bank guarantee to taxable person under section 83 of the Act.
In the case of M/s Concepts Global Impex V. Union of India and others In the Hon`ble High court of Punjab and Haryana held that unless a demand, which is finalized and is existing which is liable to be discharged, the revenue cannot retain any amount unless there exists specific provision in the statute for the retention of the amount. As far as the voluntary amount deposited by the taxable person is concerned, case of the taxable person is that the same was deposited under coercion. Case of the department was that the same was deposited voluntarily. Whatever be the position, unless there is assessment and demand, the amount deposited by the taxable person cannot be appropriated. No justification has been shown for retaining the amount deposited, except saying that since it was voluntarily deposited. In view of this admitted position, the taxable person is entitled to be returned the amount paid which he has deposited to the department.
Even if the show cause notice issued, then directed to department to refund the amount after retaining 10% of the duty demanded.
In the case of Vinod Kumar Murlidhar Chechani V. state of Gujarat in the Hon`ble Gujarat High Court held that the power under Section 83 of the Act should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee. The attachment of bank account and trading assets should be resorted to only as a last resort or measure. The provisional attachment under Section 83 of the Act should not be equated with the attachment in the course of the recovery proceedings. We request the Union of India as well as the CBDT to consider issuing appropriate instructions or guidelines at the earliest with respect to the exercise of power under Section 83 of the Act, 2017.