Direction to Union of India (UOI) and CBDT for issuing appropriate instructions or guidelines to the exercise of power under Section 83 of the CGST Act, 2017

Generally, in each and every matter in which proceedings under Section 67 of the CGST Act, 2017 are initiated, an order of provisional attachment of the bank accounts under Section 83 of the CGST Act, 2017 is followed. In various matter, the High Courts have observed misusing this provision by Revenue or causal exercise of power under this section by Revenue.

Now, the Hon’ble Gujarat High Court in recent matter namely VINODKUMAR MURLIDHAR CHECHANI PROPRIETOR OF M/s CHECHANI TRADING CO. Versus STATE OF GUJARAT & 1 other(s), dated 04th January, 2021 has observed in para 53 that “We have noticed over a period of time that in each and every matter in which proceedings under Section 67 of the Act are initiated, an order of provisional attachment of the bank accounts under Section 83 of the Act would follow. This mechanical exercise of the power is not appreciated. The Legislature has thought fit to confer upon the authority the power to provisionally attach the property of the assessee in the hope that such power is not exercised casually but, only after due and proper application of mind. A mechanical or casual exercise of such power will dilute the very efficacy of the provisions of Section 83 of the Act. Every day there are not less than ten matters on the subject of Section 83 of the Act in the cause-list. When there are plethora of judgments explaining Section 83 of the Act in details, then why so much of litigation in the High Court. The only reason that can be attributed is the mechanical exercise of power under Section 83 of the Act. This should stop at the earliest. So much judicial time is wasted in all such matters wherein the law is so well settled.”

The Hon’ble Gujarat High Court has also directed that ‘we request the Union of India as well as the CBDT to read this judgment thoroughly and consider issuing appropriate instructions or guidelines at the earliest with respect to the exercise of power under Section 83 of the Act, 2017.’

 It is pertinent to note that earlier Hon’ble Gujarat High Court in VALERIUS INDUSTRIES LIMITED VS UNION OF INDIA on 28th August, 2019 while dealing with question of provisional attachment of property and bank account in this case in Para No. 52 has concluded as under:

” 52. Our final conclusions may be summarized as under:

1. The order of provisional attachment before the assessment order is made, may be justified if the assessing authority or any other authority empowered in law is of the opinion that it is necessary to protect the interest of revenue. However, the subjective satisfaction should be based on some credible materials or information and also should be supported by supervening factor. It is not any and every material, howsoever vague and indefinite or distant remote or far fetching, which would warrant the formation of the belief.

2. The power conferred upon the authority under Section 83of the Act for provisional attachment could be termed as a very drastic and far-reaching power. Such power should be used sparingly and only on substantive weighty grounds and reasons.

3. The power of provisional attachment under Section 83of the Act should be exercised by the authority only if there is a reasonable apprehension that the assessee may default the ultimate collection of the demand that is likely to be raised on completion of the assessment. It should, therefore, be exercised with extreme care and caution.

4. The power under Section 83 of the Act for provisional attachment should be exercised only if there is sufficient material on record to justify the satisfaction that the assessee is about to dispose of wholly or any part of his / her property with a view to thwarting the ultimate collection of demand and in order to achieve the said objective, the attachment should be of the properties and to that extent, it is required to achieve this objective.

5. 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.

6. 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.

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.”

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.           

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