Heard learned counsel for the parties.
2. By this petition filed under the provisions of Article 226 of the Constitution of India, petitioners have prayed for the following reliefs:
“a) Quash and set aside impugned communication / order dated 27.09.2019 (Exhibit “H”) & 22.09.2020 (Exhibit “P”) issued by Respondent No.2 to the extent it provisionally attaches share of the Petitioner No.1 in the escrow account No.36030200000659 held in Respondent No.4 bank;
b) By way of interim relief direct the Respondent No.4 to transfer 97% of the amount lying in escrow account No.36030200000659 to the account of the Petitioner No.1 as per instruction dated 25.07.2017 on such terms and conditions as may be deemed fit;
c) Ad interim reliefs in terms of prayers (b);
d) Cost of the petition be provided for;
e) For such other and further reliefs, as the nature and circumstances of case may require;”
3. Petitioners had initially challenged the provisional attachment order dated 27.09.2019 issued by the Commissioner of Central Goods and Services Tax and Central Excise, Mumbai i.e. respondent No.2 provisionally attaching escrow account No. 36030500000014 held in Bank of Baroda, Mahim Branch. Writ Petition was filed on 21.07.2020. This provisional attachment order automatically came to an end on the expiry of one year under the provisions of Section 83(2) of the Central Goods and Services Act, 2017 (for short “the CGST Act”). Respondent No.2 has issued fresh provisional attachment order dated 22.09.2020 of the said escrow account during the pendency of the writ petition which is now challenged by the petitioners. This account is jointly held by respondent No.3 and petitioner No.1.
4. Before we advert to the submissions made by learned counsel for the parties, it will be apposite to refer to the relevant facts:
4.1. Petitioner No.1 is a contractor engaged in construction activities. Pursuant to tender floated by the Maharashtra State Power Generation Company Limited (for short “MSPGCL”) for landscaping and plantation work at various locations at its Koradi Expansion Plant, respondent No.3 was declared as the successful bidder and issued work order dated 16.07.2016; permission was granted to respondent No.3 by MSPGCL on 16.03.2017 for subletting the contract to petitioner No.1; accordingly respondent No.3 appointed petitioner No.1 as sub contractor to carry out the work order awarded considering petitioner No.1’s expertise in the said field; in this connection, Memorandum of Understanding (for short “MOU”) and Sub Contract Agreement both dated 15.03.2017 were executed between the parties.
4.2. One of the essential conditions of the Sub Contract Agreement dated 15.03.2017 was that an escrow account shall be opened with a mutually agreed bank wherein MSPGCL shall transfer the amount pertaining to running account bills raised pursuant to the date of the work order awarded to respondent No.3; accordingly, joint escrow account No. 36030200000659 was opened in respondent No. 4 bank; Respondent No.3 was the first party whereas petitioner No.1 was the second party in the joint account. It was agreed that out of the deposits made in the escrow account, 3% shall be transferred to respondent No.3 and 97% shall be transferred to petitioner No. 1; accordingly standing instructions to that effect were given to respondent No. 4 Bank.
4.3. MSPGCL credited the amount of the running bills raised by respondent No.3 in the joint escrow account and the amount was apportioned in the ratio of 3% and 97% as per standing instructions given to the respondent No.4 bank.
4.4. On 23.01.2020, MSPGCL credited an amount of Rs.81,96,823.00 in the escrow account towards the 12th running account (RA) bill. Petitioner No.1 was entitled to 97% out of this receipt and therefore by letter dated 29.01.2020 informed the bank to transfer the amount to the petitioner No.1’s account. On 03.02.2020 petitioner No.1 received a reply from the bank that the escrow account was blocked due to debit freeze instructions received from respondent No.2 in view of legal proceedings initiated by respondent No.2 against respondent No.3. It appears that the said escrow account was provisionally attached under instructions of respondent No. 2 dated 27.09.2019. Respondent No. 4 bank by letter dated 27.02.2020 informed respondent No.2 that 97% share out of the receipts in the escrow account was for disbursement to the petitioner No.1 in view of the contractual obligation between the parties and standing instructions given to the bank. Simultaneously respondent No.3 also informed the bank to release the share (97%) of respondent No.1 out of the receipts received in the escrow account.
4.5. Since the petitioners did not receive the amount, present petition was filed on 03.07.2020 to challenge the provisional attachment order dated 27.09.2019.
5. As almost one year had elapsed since passing of the provisional attachment order dated 27.09.2019, fresh provisional attachment order dated 22.09.2020 was passed by respondent No. 2 in respect of the said escrow account.
5.1 In view of the aforesaid development, the writ petition was amended subsequently to challenge the fresh provisional attachment order dated 22.09.2020 in respect of the escrow account to the extent of the share of petitioner No.1.
6. Mr. Abhinav Kumar, Deputy Commissioner of Central Goods and Services Tax, Mumbai Central Commissionerate has filed reply affidavit on behalf of respondent Nos.1 and 2. Stand taken in the affidavit is that there is no cause of action for the petitioners to file the writ petition as no action has been taken by the answering respondents against the petitioners. Enquiry has been initiated against respondent No.3 and on being satisfied the proper officer has attached the bank account of respondent No.3. Petitioners’ contention that it has an agreement with respondent No.3, whereunder they have 97% share in the said account cannot be agitated in a writ proceeding. Reference has been made to section 83 of the Central Goods and Services Tax Act, 2017, whereafter impugned action has been justified. Contention of respondent Nos.1 and 2 is that the dispute is between the petitioners and respondent No.3. Therefore, answering respondents have no role to play.
6.1. Respondent No.3 has defrauded the government exchequer. Therefore, impugned steps have been taken to safeguard government revenue.
6.2. Referring to section 83(2) of the CGST Act it is stated that every provisional attachment made under sub-section (1) shall cease to have effect after expiry of one year from the date of the order made under sub-section (1). Department is well within its right to issue a fresh order for provisional attachment. Since there is no provision barring the authority from issuing a fresh order upon completion of the period of one year, it is contended that on expiry of the period of one year if the appropriate authority is of the opinion that such an attachment is further required to protect the interest of government revenue, it may issue a fresh order subject to compliance of the requirement of section 83(1) of the CGST Act.
7. Petitioners have filed rejoinder affidavit to the reply affidavit filed by respondent Nos.1 and 2. It is stated that in view of admission by respondent Nos.1 and 2 that no action has been taken against the petitioners nor any action contemplated, there should be no imperilment for respondent No.4 to release the money of the petitioners lying with the escrow account.
8. A reply affidavit has been filed on behalf of respondent No.3. While stating that no relief has been sought for by the petitioners against respondent No.3, however, allegations made by respondent Nos.1 and 2 in their reply affidavit against respondent No.3 have been denied. It is stated that respondent No.3 has cooperated with the investigation carried out by respondent Nos.1 and 2.
9. Mr. Saurabh Tapadia, learned counsel appearing for the petitioners submitted that the escrow account was attached under the provisions of Section 83 of the CGST Act due to proceedings initiated against respondent No.3; such provisional attachment of escrow account under Section 83 can be exercised only if any proceedings referable to sections 62, 63, 64, 67, 73 and 74 of the CGST Act have been initiated against the taxable person. He submitted that in the present case no such proceedings were initiated against petitioner No.1; Proceedings, if any, were initiated against respondent No.3; Escrow account being a joint account held by respondent No.3 and petitioner No.1 could not be attached to the extent of the petitioner No1’s share in view of standing instructions given to the bank on 25.07.2017 that the bank was required to remit 97% of the amount received in the escrow account to the account of petitioner No.1 and 3% to the account of respondent No.3; at the highest 3% of the receipts in the escrow account as belonging to respondent No.3 could be attached; there was no direct nexus nor privity of contract between petitioner No.1 and the MSPGCL in so far as contractual obligation was concerned. He further submitted that petitioner No.1 was permitted to be appointed as a sub-contractor by MSPGCL and as per the MOU and Sub Contract Agreement, both dated 15.03.2020, liability to pay taxes was on the respondent No.3 and in view thereof attachment of the petitioner No.1’s share in the escrow account is arbitrary, illegally and high handed. Accordig to him, there was no inquiry contemplated against petitioner No.1 under the provisions of the CGST Act, neither any inquiry was initiated nor is pending; petitioner No.1 is the pre-dominant beneficiary of the escrow account; under the provisions of Section 83 provisional attachment can be made at the maximum for a period of one year only; therefore, the fresh provisional attachment order dated 22.09.2020 continuing the attachment without any proceedings intiated against the petitioner No.1 is extremely high handed; Petitioners have filed objections dated 09.10.2020 under Rule 159(5) of the Central Goods and Services Tax Rules, 2017 (for short “the CGST Rules”) to the fresh provisional attachment order dated 22.09.2020; however, no decision has been taken. Petitioners require the funds to carry on its business and more importantly the remittance in the escrow account pertains to 12th running account bill, work for which has been completed by petitioner No.1 and there can by no reason / justification for withholding / attaching petitioner No.1’s share of Rs.79,50,918.00 to the extent of 97%.
10. PER CONTRA, Mr. Pradeep Jetly, learned Senior Counsel appearing for respondent Nos.1 and 2 has contended that attachment of the escrow account was in accordance with law and the writ court should not take cognizance of the private agreement between petitioner No.1 and respondent No.3; investigation against respondent No.3 i.e. M/s. Creative Business Associates is under progress; action of attachment of escrow account which stands in the first name of respondent No.3 is maintainable; respondent No.3 has provided the escrow account for GST registration and the impugned action is justified and carried out correctly in the prescribed format of FORM GST DRC 22 in order to safeguard government revenue; plea of the petitioners cannot be countenanced; respondent No.3 has not cooperated in the investigation; modus operandi of respondent No.3 to evade tax and to cause loss to the government exchequer is systematically planned; and that the lis in the petition solely pertains to breach of trust between petitioner No.1 and respondent No.3 without involving the government department. He submitted that the fresh order of provisional attachment dated 22.09.2020 has been correctly passed in view of the on going investigation in order to protect the interest of government revenue after the expiry of the period of one year from the date of the first order.
11. Mr. Paranjape, learned counsel for respondent No. 3 while supporting the contentions advanced by learned counsel for the petitioners, however submits that respondent No. 3 is cooperating with the investigation carried out by respondent Nos. 1 and 2.
12. Submissions made by learned counsel for the parties have been duly considered. Materials on record have also been perused.
13. Before we advert to the submissions made by the learned counsel for the respective parties, we may briefly refer to the relevant provisions of the CGST Act.
14. Section 83 of the CGST Act confers power upon the authority to make provisional attachment in certain cases. Section 83 of the CGST Act reads thus:-
“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).”
15. From the above it is discernible that such power can be exercised only if any proceedings under mentioned provisions of the act have been initiated against the taxable person. In the present case, the ‘taxable person’ is respondent No.3 and it appears that proceedings under the CGST Act have been initiated against the said respondent. As part of the said proceedings, the escrow account which stood in the joint names of respondent No.3 being the first holder and petitioner No.1 (second holder) was provisionally attached vide order dated 27.09.2019. Petitioners have pleaded that since no proceedings have been contemplated and / or initiated under any of aforesaid provisions of the CGST Act against petitioners, the provisional attachment of the escrow account to the extent of 97% of the receipts received in the account belonging to the petitioners is not justified and is ex-facie
“It is an admitted position that proceedings under the provisions of Section 74 of the CGST Act have been initiated against respondent No.3 only. It is pertinent to note that the first provisional attachment order dated 27.09.2019 issued to respondent No.3 reads thus:
“ It is to inform that M/s Creative Business Associates having Principal place of business at A 11 / 12, Shree Ganesh Apartment, Opp. Shitaladevi Temple, L.J. Road, Mahim, Mumbai – 400 016 bearing GST Registration No.27AAFFC4843GIZI, PAN Number AAFFC4843G, is a registered taxable person under the CGST Act, 2017, Proceedings have been launched against aforesaid taxable person under Section 74 of CGST Act, 2017 to determine the tax or any other amount due from the said person. As per information available with the department, it has come to my notice that the said person has a Account in your bank having Account No.36030500000014.
In order to protect the interests of the revenue and in exercise of the powers conferred under Section 83 read with Rule 159(1) of CGST Act, 2017, I Shri. Rajesh Sanan, Commissioner CGST & Central Excise, Mumbai Central hereby provisionally attach the aforesaid account.
No debit shall be made from the said account or any other account operated by the aforesaid person on the same PAN without the prior permission of this department.”
16.1. The provisional attachment order states that M/s Creative Business Associates i.e. respondent No.3 having GST registration No. No.27AAFFC4843GIZI is a registered taxable person under the CGST Act and proceedings have been launched under Section 74 of the CGST Act to determine the tax and any amount due in order to protect the interest of the revenue. Therefore bank account No. 36030500000014 was provisionally attached under Section 83 of the CGST Act read with Rule 159(1) of the CGST Rules. However it is also imperative to note that account No.36030500000014 is an escrow account in respect of which standing instruction were given by respondent No.3 to respondent No.4 bank on 25.07.2017 that out of the total receipts received in the said account the share of respondent No.3 would be 3% only; the balance 97% would have to be transferred to the petitioner No.1’s account.
17. The fresh provisional attachment order has been issued on 22.09.2020 since the first provisional attachment order dated 27.09.2019 would cease to operate beyond the period of one year in view of the provision of Sub Section (2) of Section 83 of the CGST Act. To this the petitioners have filed their statutory objections dated 09.10.2020 as contemplated under the sub-Rule (5) of Rule 159 of the CGST Rules. It is pertinent to note that the petitioners were never served with both the attachment orders dated 27.09.2019 and 22.09.2020. Petitioners learnt about the same from respondent No.4 bank when the share of petitioner No.1 (97%) was not transferred from the escrow account.
18. Though at the first glance an impression was created that the lis pertains to a contractual dispute between the petitioners on the one hand and respondent No.3 on the other hand, but on a closer scrutiny we find that the rights of the petitioners have adversely affected by action taken by respondent Nos.1 and 2 against respondent No.3. This position is made abundantly clear by respondent Nos.1 and 2 in the reply affidavit by stating that no action was taken or contemplated against the petitioners. Petitioners being adversely affected by action of respondent Nos. 1 and 2 taken against respondent No.3, has a legitimate grievance which needs to be redressed.
19. It is an undisputed and admitted position that in view of the contractual arrangement between respondent No.3 and petitioner No.1, the receipts received in the escrow account belonged to the respective parties in the proportion as agreed upon by the parties. These receipts have been in respect of the amounts deposited by the MSPGCL into the escrow account pertaining to the running account (RA) bills of the work done / completed. In the past, receipts of amounts pertaining to 11 RA bills had been apportioned in the agreed manner. The receipt of amounts pertaining to the 12th RA bill into the escrow account has been provisionally attached due to proceedings initiated against respondent No.3 by respondent Nos. 1 and 2. Since respondent No. 3 has not raised any grievance, we may not go into the proceedings initiated under the provisions of Section 74 of the CGST Act against respondent No.3 in the present petition.
20. However in the given facts, case of the petitioners, needs to be considered as admittedly petitioner No. 1 is not the taxable person. Petitioners have filed their statutory objections under Rule 159(5) of the CGST Rules in response to the fresh provisional attachment order dated 22.09.2020 before respondent No.2. Respondent No.2 shall give a hearing to the petitioners and decide their objections in accordance with the provisions of the CGST Act and the CGST Rules. Considering the admitted fact that no proceedings have been initiated against the petitioners and no inquiry has been contemplated against the petitioners under the provisions of the CGST Act, we direct that until decision is taken on the objection filed by the petitioners by respondent No.2, petitioner No.1 shall maintain a balance of Rs. 5,00,000.00 in the escrow account out of the share belonging to the petitioner No.1. In effect, we lift the provisional attachment in so far as petitioner No. 1’s share in the escrow account is concerned subject to maintaining credit balance of Rs. 5,00,000.00 by petitioner No. 1 out of its share and direct that respondent No.4 would be at liberty to transfer / remit the proportionate amount due to petitioner No. 1 to the account of petitioner No.1 and maintain balance of Rs. 5,00,000.00 till the aforementioned decision is taken.
21. Needless to state remaining 3% share belonging to respondent No.3 in the escrow account shall continue to remain attached in terms of the provisional attachment order dated 22.09.2020. We further direct respondent No.2 to consider the objections dated 09.10.2020 filed by the petitioner No.1 as being validly filed under the provisions of Rule 159(5) of the CGST Rules and dispose of the same in accordance with law, maintaining of balance of Rs. 5,00,000.00 by petitioner No. 1 in the escrow account shall be subject to outcome of such decision.
22. Writ petition stands disposed of in terms of the above directions. However, there shall be no order as to costs.