[Ref: In the matter of M/s. Bindal Smelting Private Limited vs Additional Director General on 20 December, 2019 before DB of Punjab & Haryana High Court]

In In the matter of M/s. Bindal Smelting Private Limited vs Additional Director General on 20 December, 2019 the DB of Punjab & Haryana High Court directed that the power should be exercised only to protect interest of revenue and NOT TO RUIN BUSINESS OF ANY TAXABLE PERSON. Basically, in the aforesaid matter, 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 will find in the aforesaid case that how the Government had made an order of provisional attachment which was meaningless and action remained only on paper. 

M/s. Bindal Smelting Private Limited (Petitioner) had filed a petition under Article 226 of Constitution of India for seeking quashing of order dated 10.07.2019 and order dated 12.09.2019 passed by Additional Director General, Gurugram (Respondent) in exercise of power conferred under Section 83 of Central Goods and Services Tax Act, 2017 (‘CGST Act, 2017’) whereby Respondent has provisionally attached bank account of the Petitioner.

The Respondent vide order dated 10.07.2019 provisionally attached Over Cash Credit Account of the Petitioner, which they are maintaining with Lakshmi Vilas Bank, Karol Bagh, New Delhi. The Petitioner in terms of Rule 159 of CGST Rules, 2017 made a representation to the Respondent, who vide communication dated 23.10.2019 declined to accede request of the Petitioner to lift attachment of bank account.

In the said petition, the DB of Punjab & Haryana High Court ordered that impugned order dated 10.07.2019 and order dated 12.09.2019 in the teeth of intent and purpose of Section 83 of CGST Act, 2017 is bad and present petition deserves to succeed and accordingly allowed. The impugned orders dated 10.07.2019 and order dated 12.09.2019 are hereby quashed and set aside.

The Hon’ble Court finds that Respondent has power to attach property and bank account of any taxable person to protect interest of revenue. Person aggrieved may make representation against attachment of property or bank account and Commissioner after affording opportunity of hearing is bound to decide representation in one or another way. Section 83 of CGST Act and Rule 159 of CGST Rules are reproduced as under:

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). 

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”.

The Hon’ble Court also finds that during the pendency of any proceedings under Section 62 (assessment of non-filers of returns) or Section 63 (assessment of unregistered persons) or Section 64  (summary assessment) or Section 67 (inspection, search and seizure) or Section 73 (determination of tax not paid otherwise than fraud) or Section 74 (determination of tax not paid on account of fraud), the Commissioner may provisionally attach any property including bank account. The power of attachment is not absolute. The attachment is subject to following safeguards:

i) Order should be passed by Commissioner;

ii) Proceeding under Section 62 or 63 or 64 or 67 or 73 or 74 should be pending;

iii) Commissioner must form an opinion

iv) Order should be passed to protect interest of revenue.

v) It must be necessary to attach property.

Expression ‘is of the opinion’ or ‘has reason to believe’ are of same connotation and are indicative of subjective satisfaction of Commissioner, which depends upon facts and circumstances of each case. It is settled law that ‘opinion’ must have a rational connection with or relevant bearing on the formation of the opinion. Rational connection postulates that there must be a direct nexus or live link between the protection of interest and available property which might not be available at the time of recovery of taxes after final adjudication of the dispute. The opinion must be formed in good faith and should not be a mere pretence. Courts are entitled to determine whether the formation of opinion is arbitrary, capricious or whimsical. Expression ‘necessary’ must also be taken care of. From the order and record, it must come out that actually it was necessary to take drastic action of attachment.

The object and intention of legislature to endow Commissioner with power of attachment under Section 83 is very clear. It is drastic and far-reaching power which must be used sparingly and only on substantive weighty grounds and reasons. The power 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. Cash in hand as well bank account is property, in the form of liquidity which is better than immovable property and directly affects working in the form of working capital of a dealer. A dealer may be having cash in hand or in account in the form of fixed deposit or saving account. The mandate of Section 83 in our considered opinion is to attach amount lying in an account in the form of FDR or saving and it cannot be intention or purport of Section 83 to attach an account having debit balance. No purpose leaving aside securing interest of revenue is going to be achieved except closure of business which cannot be permitted unless and until running of business itself is prohibited by law. The contention of Respondent that they have power to attach bank account irrespective of nature of account cannot be countenanced.

The Hon’ble Court finds that Respondent can attach an account only if there is some balance in the form of FDR or savings. The power of attachment of bank account cannot be exercised as per whims and caprices of the Authority. The Commissioner is bound to ensure that by attachment of property or bank account, interest of revenue is going to be protected. In case a property is mortgaged with bank and value of property is less than outstanding dues of bank, provisional attachment is meaningless and action remains only on paper.

 *****

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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