Mutharamman & Co. Vs Principal Additional Director General (Madras High court)
Conclusion: The Hon’ble High Court observed while allowing the Writ observed that the power conferred upon an authority under Section 83 of the CGST Act, 2017 is substantial and with great power comes great responsibility.
Facts: The Petitioner in the present case has challenged attachment of Petitioner’s bank accounts in terms of Section 83 of CGST Act, based upon proceedings for search and seizure launched as against the Petitioner in terms of Section 67 of the Act.
The case of the petitioner is that the impugned attachment under Section 83 of the CGST Act is without any statutory sanction as it is consequent upon action under Section 67 of the Act, which deals with the power of the authorities to engage in inspection, search and seizure. The scope of Section 87 is wholly based upon the ‘opinion’ of the concerned Commissioner to the effect that the interests of the revenue were to be safeguarded and sanctioning coercive recovery proceedings of the nature of bank attachment in a particular case.
The allegations as against the Petitioner relate to excess claim of ITC, the Revenue was of the view that the Petitioner’s claim for ITC was fraudulent as it had, for the purpose of inflating its entitlement to ITC, projected as though it had engaged in business dealings with non-existent, bogus companies.
The Hon’ble High Court after taking submissions into consideration observed that the premise upon which Section 83 operates is the ‘opinion’ of the Commissioner that for the purpose of protecting the interests of Government revenue, it becomes necessary to attach assets of a taxable entity pending proceedings under Sections 62, 63, 64, 67, 73 or 74. Thus pertinent question for determination is as to whether the ‘opinion’ of the Commissioner in this case, is based upon a legitimate and legal apprehension that the interests of the revenue required to be protected.
Respondent No. 2, thus proceeds on the firm conviction that the petitioner was availing fraudulent ITC from bogus/non-existent units. The Hon’ble High Court observed that this conclusion appears pre-mature, as investigation had just been completed. Investigation, per se, is the process of collecting material from the premises of the assessee and consequent upon such investigation, the authorities are expected to study the documents and verify the same in conjunction with the assessee who shall be summoned for hearings. It is only thereafter that one is expected to arrive at a conclusion as to whether the accounts of the assessee are in order and whether the returns filed by the petitioner, both in relation to declaration of the turnover and claim of ITC, are proper.
Thus, it was observed that the Respondent No. 2, erred in putting the cart before the horse and rendering a finding that the Petitioner was availing fraudulent ITC from bogus/non-existent units. The proceedings were placed for approval on 23.11.2020 and approved on the same day by Respondent No. 1. It was observed that the opinion, based upon which the impugned proceedings have been taken is wholly non-speaking, makes no reference to materials, if any, found in the course of the Investigation and the reasoning upon which he arrives at the conclusion that the Petitioner’s bank account is to be attached.
Further, it was observed that in the present case, there are serious allegations in regard to the excess claim of ITC based on transactions with non-existent or fraudulent entities. However, such allegations are to be based upon supporting materials and evidences if they are to translate into an ‘opinion’ as required in terms of Section 83. However, the ‘brief for opinion’ by Respondent No. 1 and the ‘opinion’ of Respondent No. 2 must contain references to the material while according sanction under Section 83.
So too in the present case, the reference to ‘opinion’ in Section 83, cannot be mere lip service and cannot be satisfied by the officer, proceeding on the basis that the liability of an assessee stood determined even prior to the issue of a notice of assessment and merely stating that, in his opinion, this was a case where the interests of the revenue are to be protected.
While allowing the Writ Petition, it was observed by the Hon’ble High Court that the power conferred upon an authority under Section 83 is substantial and with great power comes great responsibility. The authority concerned must justify the invocation of the coercive and intrusive recovery proceedings against the assessee, even prior to determination of liability and passing of an assessment order. The burden that lies upon the revenue is heavy and has to be seen to be discharged by them in a proper manner in each and every case where power under Section 83 is invoked.
FULL TEXT OF THE JUDGMENT/ORDER of MADRAS HIGH COURT
The petitioner is an assessee under the provisions of the Central Goods and Service Tax Act, 2017 (in short ‘CGST Act/Act’) and challenges proceedings dated 23.11.2020 issued by the first respondent attaching the petitioner’s bank accounts in terms of Section 83 of CGST Act, based upon proceedings for search and seizure launched as against the petitioner in terms of Section 67 of the Act.
2. Heard Mr.P.Rajkumar, learned counsel for the petitioner and Mr.V.Sundareswaran, learned Senior Panel Counsel for the official respondents i.e., The Principal Additional Director General of GST Intelligence/R1 & The Senior Intelligence Officer/R2. Though notice has been issued to the Branch Manager, Indian Bank/R3, there was no appearance for the Bank.
3. In short, the case of the petitioner is that the impugned attachment under Section 83 of the CGST Act is without any statutory sanction as it is consequent upon action under Section 67 of the Act, which deals with the power of the authorities to engage in inspection, search and seizure. The scope of Section 87 is wholly based upon the ‘opinion’ of the concerned Commissioner to the effect that the interests of the revenue were to be safeguarded and sanctioning coercive recovery proceedings of the nature of bank attachment in a particular case.
4. The Head Office of the petitioner was subject to proceedings for inspection, search and seizure by R2 and other officials of the Intelligence Wing on 09.01.2020. A Mahazar was drawn and various materials including files and a pendrive, seized. With this, proceedings under Section 67 have been, according to the petitioner, concluded. This aspect of the matter is not disputed by the respondents. Section 67 provides exhaustively for the procedure to be engaged in and carried out by officials of GST Intelligence to search the premises of the taxable person in the event of apprehension that there has been suppression of transactions relating to supply of goods or services or both, or stock of goods in hand or excess claim of Input Tax Credit (UTC) or indulgence in contravention of any of the provisions of the Act or Rules with the intention of evading tax under the Act.
5. The allegations as against the petitioner relate to excess claim of ITC. I refrain from referring to the facts any further as it is not material to decide the legal question arising for resolution of this Court. Suffice it to say that the revenue was of the view that the petitioner’s claim for ITC was fraudulent as it had, for the purpose of inflating its entitlement to ITC, projected as though it had engaged in business dealings with non-existent, bogus companies.
6. Section 83 provides for the provisional attachment of any property including bank accounts belonging to the taxable person with the avowed object of protecting the revenue, in certain cases. Section 83 reads as follows:
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).
7. The premise upon which Section 83 operates is the ‘opinion’ of the Commissioner that for the purpose of protecting the interests of Government revenue, it becomes necessary to attach assets of a taxable entity pending proceedings under Sections 62, 63, 64, 67, 73 or 74. Thus one of the questions that would arise is whether there are any proceedings pending in the petitioner’s case that would justify the impugned provisional attachment. In the counter filed by the respondents, there is no dispute on the position that proceedings under Section 67 of the Act have reached a conclusion, and no show cause notice has been issued either under Section 73 or 74 initiating proceedings for assessment.
8. The second and more pertinent question that remains for determination is as to whether the ‘opinion’ of the Commissioner in this case, is based upon a legitimate and legal apprehension that the interests of the revenue required to be protected. I had on 05.07.2021, thus recorded as follows:
Heard both learned counsel in brief.
2. The question to be answered is as to whether the Commissioner has recorded his opinion, as required statutorily under Section 83 of the Central Goods and Services Tax Act, 2017 (Act) prior to the attachment of the petitioner’s bank accounts on 23.11.2020. In the impugned order attaching the bank accounts, the Principal Additional Director General (commensurate with the Commissioner) states that the attachment is ‘in order to protect the interest of revenue’. However, this apprehension should be supported by the recording of the reasons on the basis of which he comes to such conclusion.
3. List on 14.07.2021 within the first five matters after admission. Records to be produced.
9. In response, Mr.Sundareswaran has filed a compilation dated 16.07.2021, containing two documents. The first is a copy of the note sheet proceedings of the Senior Intelligence Officer/R2, recording the background of the search operation, the allegations as against the petitioner in regard to excess claim of ITC and in conclusion, seeking necessary approval/sanction for initiation of investigation against the petitioner and its sister concerns. The note, dated 24.08.2020 under F.No.INT/DGGI/CZU/GST/66/2020, commences with the following narration:
Consequent to the investigation initiated against Shri. P Sivakumar, proprietor of M/s. Mutharamman & Co. and Smt. Shunmugadevi who have played major role in creation of bogus firms by obtaining the credentials of their friends and family members for obtaining fraudulent GSTINs. It was found that they are availing fraudulent ITC from bogus/non-existing units. It is found that Smt. Shunmugadevi is operating the bank accounts of Sl. 3, 4, 5, 6 & 7 as given in below table. Transaction of bogus companies indulging in passing on fraudulent ITC were carried out by using these bank details. The details of those PAN based accounts are given below table.
10. The proceedings have been placed before R1 on the same day and received approval as proposed, on the same day. Thereafter, R2 puts up a note on 03.11.2020 giving the details of the bank accounts of Mr.Sivakumar, Proprietor of the petitioner proprietory and his wife Mrs.Shunmugadevi, who also manages some of the sister concerns of the petitioner concern.
11. R2 thus proceeds on the firm conviction that the petitioner was availing fraudulent ITC from bogus/non-existent units. To me, this conclusion appears pre-mature, as investigation had just been completed. Investigation, per se, is the process of collecting material from the premises of the assessee and consequent upon such investigation, the authorities are expected to study the documents and verify the same in conjunction with the assessee who shall be summoned for hearings. It is only thereafter that one is expected to arrive at a conclusion as to whether the accounts of the assessee are in order and whether the returns filed by the petitioner, both in relation to declaration of the turnover and claim of ITC, are proper.
12. Thus, R2, in my view, erred in putting the cart before the horse and rendering a finding that the petitioner was availing fraudulent ITC from bogus/non-existent units. The proceedings were placed for approval on 23.11.2020 and approved on the same day by R1 in the following terms:
‘Since the said firms have been found to have availed fraudulent ITC passed on by bogus firms and are involved in availment of and passing on of fraudulent ITC. Bank accounts may be attached to protect revenue.’
13. The error committed by R2, as noted by me in the preceding paragraphs, has been perpetrated by R1, whose ‘opinion’, as above, also proceeds on the firm conviction that the claim of ITC by the petitioner is fraudulent and emanated from bogus, non-existent firms. His opinion, based upon which the impugned proceedings have been taken is wholly non-speaking, makes no reference to materials, if any, found in the course of the Investigation and the reasoning upon which he arrives at the conclusion that the petitioner’s bank account is to be attached.
14. Thereafter, on 09.12.2020, R2 proposes to call upon the firms from which the petitioner claims to be engaged in business, to enquire and verify whether the claim of ITC was proper. There is no flaw or error in this, as R2 is well within his domain to cause enquiry in this regard. The sequence of events as narrated above would show that a conclusion and determination of liability has been arrived at by R2 and thereafter by R1, even prior to summoning the entities who are stated to be ‘bogus’ and non-existent.
15. The request of the petitioner for lifting of the attachment has come to be refused by the respondents, since the petitioner had not remitted certain amounts despite commitments made by them to the effect that payments would be effected towards the liabilities. In this connection, my attention is drawn to a statement recorded from Mrs.Shunmugadevi, wherein, in answer to question No.7, she concedes to the position that there has been no supply made by the companies, states that ineligible ITC originally claimed has been reversed and further that ineligible ITC claimed would be remitted within a weeks’ time.
16. Question No.7 and her answer thereto are extracted below:
Q. No.7. It is noticed that you have purchased invoices without actual receipt of the goods from non-existent/fake units as detailed below. Please comment.
