[Ref: In the matter of Pranit Hem Desai vs Additional Director General on 28th August, 2019 before DB of Gujarat High Court]

Please refer to our Article dated 7th January, 2021 at https://taxguru.in, wherein it has been submitted that the power u/s 83 of the CGST Act, 2017 should be exercised only to ‘protect interest of revenue’ and NOT TO RUIN BUSINESS OF ANY TAXABLE PERSON. Primarily Section 83 permits to attach property. Property means an asset which may be movable, immovable, tangible, intangible or in the form of some instrument. [Refer M/s. Bindal Smelting Private Limited vs Additional Director General on 20 December, 2019 before DB of Punjab & Haryana High Court. Basically, in this Article dated 7th January, 2021, the power u/s 83 of the CGST Act, 2017 was discussed and stated that it is drastic and far-reaching power which must be used sparingly and only on substantive weighty grounds and reasons. But same time, this should not be used to ruin the business of any taxable person. You had already seen in M/s. Bindal Smelting Private Limited case that how the Government had made an order of provisional attachment which was meaningless and action remained only on paper.

Now we would like to discuss and deal herein a case of unique example wherein the Government could not establish, by their action of provisional attachment of the account of the taxable person, that the revenue of the government was on stake.  In Pranit Hem Desai vs Additional Director General on 28th August, 2019 (referred as ‘PHM’) before DB of Gujarat High Court, the aforesaid issue was discussed.

In aforesaid PHM matter, allegations were levied against the petitioner of the said matter that without physical receipt and supply of goods, the petitioner availed credit on the basis of the invoices issued by the input supplier and thereafter, they paid credits (GST) on the basis of the output invoices without physical supply of the goods to the buyers. To put it in other words, although the goods were supplied, yet the tax was paid for the purpose of passing the credit. This is suggestive of the fact that indisputably, no GST was payable, yet the same was paid. The Petitioner submitted that Section 9 of the Act, 2017, which is the charging section, contemplates that the GST is payable only when the goods are supplied. Th Petitioner submitted that the statement of “output liability and input credit” pertinent to the companies would indicate that for the period between July 2017 and May 2019, the total input credit availed of by all the companies aggregates to Rs.59,49,18,103/ (Rupees Fifty-Nine Crore Forty-Nine Lakh Eighteen Thousand One Hundred Three only). Whereas, the total tax paid during the said period aggregates to Rs.63,62,41,525/ (Rupees Sixty-Three Crore Sixty-Two Lakh Forty-One Thousand Five Hundred Twenty-Five Only). If that be so, then there was no question of arriving at the satisfaction that the interest of the revenue goods are protected.

The Petitioner submitted that assuming for the moment that all the allegations are true and correct and the credits were wrongly availed of, still the tax has been paid though it was not liable to be paid in light of the fact that there was no supply of goods. The Petitioner submitted that the availment of credits can be justified on two counts: (1) It is a revenue neutral satisfaction (2) the payment of tax although not payable yet is to be treated as if unavailable credits are reversed after they are wrongly availed.

In Para No. 23 of its order, the Hon’ble Court observed that “without entering into any other controversy, we are inclined to allow all the six writ applications on the short ground that during the period between July 2017 and May 2019, the total input tax credit availed by the writ applicants aggregates to Rs.59,49,18,103/( Rupees Fifty Nine Crore Forty Nine Lakh Eighteen Thousand One Hundred Three only), whereas the total tax paid during this period aggregates to Rs.63,62,41,525/( Rupees Sixty Three Crore Sixty Two Lakh Forty One Thousand Five Hundred Twenty Five Only).  The same is indicative of the fact that against the availment of credit of Rs.59,49,18,103/(Rupees Fifty Nine Crore Forty Nine Lakh Eighteen Thousand One Hundred Three only), an amount of Rs.  3,62,41,525/(Rupees Sixty Three Crore Sixty Two Lakh Forty One Thousand Five Hundred Twenty Five Only) came to be paid by way of tax. It appears that an amount of Rs.4,13,23,422/(Rupees Four Crore Thirteen Lakh Twenty Three Thousand Four Hundred Twenty Two only) has been paid in excess than the amount of credit availed. In such circumstances, it cannot be said that the interest of the government revenue is at a stake.”

Further, in Para No. 24, it was also observed that “we are at one with Mr. Trivedi (i.e. Petitioner) that even if it is assumed that the allegations as levelled by the department are correct and the credits though not available were wrongly availed since the tax had been paid, though it was not payable having regard to the fact that there was no supply of goods, the availment of credits could be said to be justified on two counts: (1) it is a revenue neutral satisfaction and (2) payment of tax although not payable yet is to be treated if unavailable credits are reversed if they were wrongly paid.”  

Further, in Para No. 25, it was also observed that “in the aforesaid context, we may refer to and rely upon a decision of this Court in the case of H M Industrial Pvt Ltd vs. Commissioner, CGST and Central Excise [Special Civil Application No.1160 of 2019 decided on 21st February 2019] wherein this Court observed as under:

“7. Mr. Mishra, learned advocate for the petitioner, has submitted that the petitioner had reversed the input tax credit of Rs.12,99,32,058/, against the total input tax credit taken in respect of M/s. Om Enterprises, M/s. Shivay Enterprises and M/s. Avi Enterprises. It is further submitted that the petitioner has already paid the initial demand of GST to the tune of Rs.7,51,01,066/. Thus, according to the learned advocate for the petitioner, in all, an amount of Rs.13,52,00,000/stands reversed.

8. On the other hand, Mr. Nirzar Desai, learned Senior Standing Counsel, under instructions, states that, in all, a sum of Rs.13,28,00,000/has been paid, either by way of reversal or otherwise. He, however, has submitted that as of now, the amount due and payable by the petitioner is Rs.16.24 crores, out of which, on the day when the order under section 83 of the CGST Act was passed, the amount was Rs.14.62 crores.

9. The impugned orders of provisional attachment have been made in exercise of powers under section 83 of the Central Goods and Service Tax Act, 2018 (hereinafter referred to as “the CGST Act”). Section 83 of the CGST Act inter alia provides that where during the pendency of any proceedings under sections 67, 73 or 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 an order in writing attach provisionally any property, including bank account, belonging to the taxable person in such manner as may be prescribed.

10. At the time when the impugned orders under section 83 of the CGST Act came to be passed, according to the respondent, an amount of Rs.14.62 crores would have been due and payable by the petitioner upon conclusion of the proceedings that may be initiated pursuant to the proceedings under section 67, 73 or 74 of the Act.

11. Under section 83 of the CGST Act, the Commissioner is empowered to order provisional attachment for the purpose of protecting the interest of the Government revenue. In the facts of the present case, while a liability of Rs.14.62 crores had been estimated at the time when the order under section 83 of the CGST Act came to be passed, the present estimate is Rs.16.24 crores. Thus, the petitioner, upon conclusion of any proceedings that may be taken pursuant to the proceedings under sections 67, 73 or 74 of the CGST Act, may be liable to pay such amount. Admittedly, the petitioner has already reversed input tax credit to the tune of Rs.13,28,00,000/. In the opinion of this Court, considering the amount paid by reversing input tax credit, the interest of the Revenue is sufficiently secured. Therefore, the provisional attachment of the above referred bank accounts of the petitioner is no longer justified.

12. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The respondent is directed to forthwith release the provisional attachment over the petitioners bank accounts being current accounts bearing No.02950500013045, 02950200000772 maintained with the Bank of Baroda, Kapadwanj, accounts No.917020026366404 and 917040037200382 maintained with the Axis Bank, Nadiad and accounts No.50200024114832 and 50200033690085 maintained with HDFC Bank, Kapadwanj as well as accounts No.02950600021450, 02950600021591, 02950600021899, 02950600022187, 02950300039429 and 02950300040500 maintained with the Bank of Baroda. Rule is made absolute accordingly.”

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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