Attentiveness regarding extended power under Section 83 of CGST Act, 2017 by Finance Bill, 2021

Revenue is frequently using the powers of provisional attachment given under Section 83 of the Central Goods and Services Tax, Act, 2017 (CGST Act, 2017). In various matter, the High Courts have observed misusing this provision by Revenue or causal exercise of power under this section by Revenue. The High Court has observed in VINOD KUMAR MURLIDHAR CHECHANI PROPRIETOR OF M/s CHECHANI TRADING CO. Versus STATE OF GUJARAT & 1 other(s), dated 04th January, 2021 that 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 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.

Moreover, The Hon’ble Gujarat High Court in Vinod Kumar (Supra) 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.’

The Hon’ble Court pointed out that 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.

Now, the budget amendment proposed by the Finance Bill, 2021 further added some fuel to it. The Finance Act, 2021 has enlarged the powers the provisional attachment in many folds. The proposed amendment will empower the commissioner to provisionally attach the property of taxable person as well as any other person as specified in Section 122 (1A) of the CGST Act, 2017. Further the Commissioner is proposed to attach the property provisionally after the initiating the proceedings under chapter XII (Assessment), Chapter IV (inspection, Search, Seizure and Arrest) and Chapter XV (Demands & Recovery) of the CGST Act, 2017.

Section 83 of the CGST Act, is proposed to be amended via clause 106 of Finance Bill, 2021. Please note that these proposals will come into effect from a date to be notified later. It is stated that Sections 2 to 79 of Finance Act, 2021 shall come into force on the 1st day of April, 2021 and Sections 99 to 114 of Finance Act, 2021 shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

Pursuant to clause 106 of the Finance Bill 2021, powers under Section 83 of the CGST Act, 2017 to make the provisional attachment of the property has been extended. Section 83 of the CGST Act, 2017 is sought to be amended so as to provide that provisional attachment shall remain valid for the entire period starting from the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV till the expiry of a period of one year from the date of order made thereunder.

Please note that before the aforesaid amendment, the provisions of Section 83 of the CGST Act, 2017 may be read as under:

“(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).”

It is stated that provisional attachment shall remain valid for the entire period starting from the initiation of any proceeding under section 62 or section 63 or section 64 or section 67 or section 73 or section 74 till the expiry of a period of one year from the date of order made thereunder. However, after the proposed amendment provisional attachment shall remain valid for the entire period starting from the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV till the expiry of a period of one year from the date of order made thereunder.

Now, via clause 106 of Finance Bill 2021, the provision of Section 83 is sought to be amended as under:

“106. 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.”.

It has been proposed to increase the ambit of provisional attachment by permitting attachments in proceedings in the nature of

  • Assessment (Chapter XII) [Section 59 to 64];
  • Inspection, Search, Seizure and Arrest (Chapter XIV) [Section 67 to 72] and
  • Demands & Recovery (Chapter XV) [Section 73 to 84]

which currently are restricted to limited types of assessments [viz. non-filers of returns (Section 62), unregistered person (Section 63), summary assessment in certain special cases (Section 64)] and power of inspection (Section 67) and demands and recovery proceedings under section 73 or 74 of the CGST Act, 2017

Extended Power under Finance Act, 2021 

Sr. No. Existing Provisions Proposed changes
1 Before exercising the powers under Section 83 there must be pendency of the proceeding under Section 62 or 63 or 64 or 67 or 73 or 74 of CGST Act, 2017. The proposed change by the Finance Act, 2021 enlarges the powers by covering the chapter XII (Assessment), Chapter IV (inspection, Search, Seizure and Arrest) and Chapter XV (Demands & recovery) of the CGST Act, 2017.
2 The property relates to the taxable person. The proposed change by the Finance Act, 2021 enlarges the powers by covering of taxable person as well as any other person as specified in Section 122 (1A) of the CGST Act, 2017.

Provisional attachment- Property of taxable person as well as any other person as specified in Sec. 122 (1A) of the CGST Act, 2017.

It is pertinent to mention herein that in the matter of Gehna Trading LLP Vs Union of India (Bombay High Court order dated 30/01/2020), the Hon’ble Court has directed that in case of specified proceedings have been launched against one taxable person, bank account of another taxable person cannot be provisionally attached merely based on the summons issued under section 70 of the CGST Act, 2017. In this case, The Deputy Commissioner, Central Goods and Service Tax (CGST) informed the Branch Manager where the Petitioner (Ghana Trading LLP in this case) holds a bank account that in view of the proceedings filed against one Yusuf Fauzdar Shaikh, proprietor of M/s. Fashion Creations, proceedings have been launched against the said taxable person and the Respondents (Department in this case) were of the belief that amounts were being transferred to various persons, including the Petitioner. Hence, a direction was issued to the bank not to allow any debit. The Hon’ble Court directed that Bank account of taxable person could be attached against whom proceedings undersections 62, 63, 64, 67, 73 and 74 of Central Goods and Services Tax, Act, 2017 were initiated. Section 83 of Central Goods and Services Tax, Act, 2017 did not provide for an automatic extension to any other taxable person from an inquiry specifically launched against a taxable person under those provisions. Accordingly, Petitioner was entitled to succeed. Hence, order passed by Deputy Commissioner attaching bank account of Petitioner, was to be quashed and set aside.

Remark: It is also pertinent to note that before the aforesaid amendment, attachment of Property was limited to the taxable person. However, after the amendment, provisional attachment can also be made to the person specified in sub-section (1A) of Section 122 of CGST Act, 2017. Section 1A of Section 122 CGST Act, 2017 refers to those persons who retains the benefit of a transaction covered under clauses (i), (ii), (vii) or clause (ix) of section 122(1) of CGST Act,2017 and at whose instance such transaction is conducted.

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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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