HC slams GST Dept for using Coercive Measures to Meet Revenue Collection Charges

Wipro Ltd. Vs State of Gujarat (Gujarat High Court)

in the absence of any debtor – creditor relationship, the department could not have asked the bank to debit the accounts of the writ applicant – company and credit a particular amount as specified in the notices to the treasury of the State Government.

We may also observe that ordinarily, when appeals are pending before the first appellate authority or the Tribunal, as the case may be, with an application seeking stay towards recovery of the tax, then, in such circumstances, the department should not proceed to take coercive steps for the recovery of the amount incurred by the dealer under the GVAT Act. This statement of ours should not be construed as an absolute proposition of law, but, the department is expected to at least wait for the final outcome of the appeals on their own merits, more particularly, when the appeals are already admitted.

The Administrative directions for fulfilling recovery targets for the collection of revenue should not be at the expense of foreclosing the remedies which are available to assessees for challenging the correctness of a demand. The sanctity of the rule of law must be preserved. The remedies which are legitimately open in law to an assessee to challenge a demand cannot be allowed to be foreclosed by a hasty recourse to coercive powers. Assessing Officers and appellate authorities perform quasi-judicial functions under the GVAT Act, 2003.

In the result, this writ application succeeds and is hereby allowed. The impugned notices are hereby quashed and set aside. The appellate authority as well as the Tribunal is directed to take up all the appeals for hearing and dispose them off on their own merits within a period of two months from today.

FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT

The draft amendment, as prayed for, is allowed. The necessary incorporation shall be carried out at the earliest.

2 . By this writ application under Article 226 of the Constitution of
India, the writ applicants have prayed for the following reliefs:

“(a) That this Honorable Court be pleased to issue a writ of certiorari or writ of mandamus or any other appropriate writ, direction or order quashing and setting aside the notices, dated 31.07.2017 and 02.08.2021 (Annexure H colly), and letter dated 05.08.2021 (Annexure IA) issued by the respondent No.3 to the branch managers of SBI, Ashram Road, Ahmedabad and HSBC, C. G. Road, Ahmedabad and to any other bank where the petitioner No.1 has bank account; and”

(b) Pending hearing and final disposal of this petition, this Honorable Court by way of ad-interim and/or interim relief be pleased to restrain the respondents to recover any amount from bank account number 00000010503343023 of SBI Bank; bank account of number 051754687001 and 071006084004 of HSBC and from any other bank account of the petitioner No.1 with respect to the notices dated 31.07.2021 and 02.08.2021 (Annexure – H colly) or any other similar notices, if any issued to any banks where the petitioner No.1 has its bank account; and

(b. 1) Pending hearing and final disposal of this petition, this Honorable Court by way of ad-interim and/or interim relief be pleased to restrain the respondents to recover any amount from any bank account of the petitioner No.1 in HSBC Bank with respect to the letter dated 05.08.2021 (Annexure – IA); and

(c) Pending hearing and final disposal of this petition, this Honorable Court by way of ad-interim and/or interim relief be pleased direct the respondents to release the bank account number 00000010503343023 of SBI Bank; bank account of number 051754687001 and 071006084004 of HSBC attached vide notices 31.07.2021 and 08.2021 (Annexure – H colly) issued by the respondent No.3; and

(d) Ex parte ad-interim relief in term of prayer 9(b) and 9(c) be granted; and

(e) For costs, and

(f) That this Honorable Court be pleased to grant such other and further relief/s as are deemed just and proper in the facts and circumstances of this case.”

3. The writ applicant No.1 is a limited company incorporated under the Companies Act and is engaged in the business of information technology services including the sale of hardware and software, the sale of consumer products and supply and installation of solar power generation plant. The writ applicant No.2 is serving as the Assistant Manager of Finance with the writ applicant No.1 – company.

4. The writ applicant – company was registered under the VAT Act and the Central Sales Tax Act, 1956 (for short, “the Central Act”) for the relevant period.

5 . The writ applicant No.1 carries its business operations under the following divisions:

“(i) Infotech Division which include supply of information technology services and sale of hardware and software.

(ii) Consumer Division which include sale of lightings, toiletries, etc and

(iii) Solar Division which include supply of solar generation and supply of power.”

6. The subject matter of challenge is the legality and validity of the notice issued by the State Tax Officer – II, Unit – 8, Ahmedabad dated 31^st July 2021 to the Branch Manager, State Bank India, Ashram Road, Ahmedabad. The same reads thus:

“No.CTO-2/Unit-8/Recovery Branch/2021-22/OW‑

Office of the Asst. Commissioner of State Tax
Unit-8, D-Block, 3rd Floor, M.S. Building,
Lal Darwaja, Ahmedabad, Gujarat.
Phone No. -079-25506351
Dt:31/07/2021

TO,
The Branch Manager,
State Bank of India,
Ashram Road, Ahmedabad.

A/C. No.00000010503343023 & any other deposits of said dealer

This is to inform to you that Government of Gujarat has to recover Rs. 49,80,05,122/ +Interest as Assessment Due / Re Assessment Due / Penalties / Interest for the Period of Financial Year of 2006-07(VAT), 2008-09(VAT), 2011-12(VAT/CST), 2012-13(CST), 2013 14/VAT/CST), 2014-15(VAT) from the Dealer M/S. WIPRO LTD. Whose Registration No. is 24073403460. Kindly attach the balance of current/saving accounts and fixed depositsor any other kind of deposits based on the PAN NO: AAACW0387R. Also provide the KYC details for the same. You have to pay Rs. 49,80,05,122/-+ Interest to the same dealer. You possess the Rs. 49,80,05,122/-+ Interest on behalf of the said dealer. So, I State Tax Officer (2) Of Unit-8, Ahmedabad, as the power Vested to me U/s. 44.of Gujarat Value Added Tax Act-2003, order to Deposit Rs.49,80,05,122/-+ Interest with Prescribed Challan at Government Treasury (or by e payment mode) within Seven days on receipt of this Notice and also provide the details of closing balance to the State Tax Inspector who has come to your bank then issue Demand Draft in favour of “SBI VAT A/C” as per available closing balance of aforementioned dealer (Refer Section 44 and 67(9)(1) of Gujarat Value Added Tax Act-2003), Also do provide the details of “PAN INDIA SEARCH” (Refer Section 70 of Gujarat Value Added Tax Act-2003). If Failing to comply with orders of this notice you are liable to penalty of Rs.25,000/-(INR) (Refer Section 70 of Gujarat Value Added Tax Act-2003).

Place : Ahmedabad
Date : 31/07/2021

Sd/-
State Tax Officer (2)
Unit-8, Ahmedabad.”

7. Identical two even dated notices as above came to be issued to the Branch Manager, HSBC Bank Limited, C. G. Road, Ahmedabad with respect to the account No.101053312001 and the third notice dated ₂nd August 2021 to the Branch Manager, HSBC Bank Limited, C. G. Road, Ahmedabad with respect to the accounts Nos.051754687001 and 071006084004 resply. It appears that against the assessment orders, appeals are pending before the first appellate authority as well as the Tribunal. The details are as under:

8. We have heard Mr. Tushar Hemani, the learned Senior Counsel assisted by Mr. Kuntal A. Parikh, the learned advocate appearing for the writ applicants and Mr. Utkarsh Sharma, the learned A.G.P. appearing for the State respondents.

9. Mr. Hemani made the following submissions:

“(i) Indisputably, the respondent No.3 has not invoked the power under Section 45 of the VAT Act to attach the bank accounts of the writ applicant No.1 during the pendency of any proceedings of assessment or reassessment of turnover escaping assessment.

(ii) The respondent No.3 has failed to frame an opinion for the purpose of protecting the interest of the government revenue by attaching the bank accounts of the writ applicant no.1.

(iii) Further, the respondent No.3 has not brought on record any tangible material on the basis of which he would have framed an opinion that the writ applicant No.1 is likely to defeat the demand and therefore attachment is necessary for protecting the interest of government revenue.

(iv) The respondent No.3 has not served copy of order of attachment to the writ applicant No.1.

(v) Further, a final demand or liability against the petitioner No.1 has not been finalized so far because appeals together with stay applications under the VAT Act and the Central Act, for the periods for which bank accounts have been attached, are pending before the appellate authorities including VAT Tribunal.

4.13  Further, it is submitted that without following procedure prescribed under Section 44 of the VAT Act the respondent No.3 has initiated recovery proceedings under the said section and threatened the bank managers of the said banks to issue Demand Draft of Rs.49, 80,05,122/- + interest in favour of “SBI VAT A/C” from account of the writ applicant No.1.

(i) The respondent No.3 has initiated coercive third party recovery proceedings under Section 44(1)(b) of the VAT Act against the writ applicant No.1 during the pendency of its appeals and stay application filed therein under the VAT Act and the Central Act.

(ii) The respondent No.3 has not served copy of notices dated 31.07.2021 and 02.08.2021 to the writ applicant No.1 though it is a mandatory requirement under Section 44(1) of the VAT Act.

(iii) The respondent No.3 has failed to provide the calculation on the basis of which he has determined dues of Rs.49,80,05,122/- + interest for the period 2006-07 (VAT), 2008-09 (VAT), 2011-12 (VAT/CST), 2012-13(CST), 2013-14(VAT/CST), 2014-15(VAT).”

10. Mr. Hemani placed strong reliance on a recent pronouncement of the Supreme Court in the case of M/s. Radha Krishan Industries vs. State of Himachal Pradesh [2021 SCC Online SC 334], wherein the Supreme Court has observed as under:

“49. Now in this backdrop, it becomes necessary to emphasize that before the Commissioner can levy a provisional attachment, there must be a formation of “the opinion” and that it is necessary “so to do” for the purpose of protecting the interest of the government revenue. The power to levy a provisional attachment is draconian in nature. By the exercise of the power, a property belonging to the taxable person may be attached, including a bank account. The attachment is provisional and the statute has contemplated an attachment during the pendency of the proceedings under the stipulated statutory provisions noticed earlier. An attachment which is contemplated in Section 83 is, in other words, at a stage which is anterior to the finalization of an assessment or the raising of a demand. Conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power. The language of the statute indicates first, the necessity of the formation of opinion by the Commissioner; second, the formation of opinion before ordering a provisional attachment; third the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue; fourth, the issuance of an order in writing for the attachment of any property of the taxable person; and fifth, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of attachment. Each of these components of the statute are integral to a valid exercise of power. In other words, when the exercise of the power is challenged, the validity of its exercise will depend on a strict and punctilious observance of the statutory pre-conditions by the Commissioner. While conditioning the exercise of the power on the formation of an opinion by the Commissioner that “for the purpose of protecting the interest of the government revenue, it is necessary so to do “, it is evident that the statute has not left the formation of opinion to an unguided subjective discretion of the Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue.

50. By utilizing the expression “it is necessary so to do” the legislature has evinced an intent that an attachment is authorized not merely because it is expedient to do so (or profitable or practicable for the revenue to do so) but because it is necessary to do so in order to protect interest of the government revenue. Necessity postulates that the interest of the revenue can be protected only by a provisional attachment without which the interest of the revenue would stand defeated. Necessity in other words postulates a more stringent requirement than a mere expediency. A provisional attachment under Section 83 is contemplated during the pendency of certain proceedings, meaning thereby that a final demand or liability is yet to be crystallized. An anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute and the rules. The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. Each of these ingredients must be strictly applied before a provisional attachment on the property of an assesses can be levied. The Commissioner must be alive to the fact that such provisions are not intended to authorize Commissioners to make preemptive strikes on the property of the assessee, merely because property is available for being attached. There must be a valid formation of the opinion that a provisional attachment is necessary for the purpose of protecting the interest of the government revenue.

51. These expressions in regard to both the purpose and necessity of provisional attachment implicate the doctrine of proportionality. Proportionality mandates the existence of a proximate or live link between the need for the attachment and the purpose which it is intended to secure. It also postulates the maintenance of a proportion between the nature and extent of the attachment and the purpose which is sought to be served by ordering it. Moreover, the words embodied in sub-Section (1) of Section 83, as interpreted above, would leave no manner of doubt that while ordering a provisional attachment the Commissioner must in the formation of the opinion act on the basis of tangible material on the basis of which the formation of opinion is based in regard to the existence of the statutory requirement. While dealing with a similar provision contained in Section 4536 of the Gujarat Value Added Tax Act 2003 , one of us (Hon’ble Mr Justice MR Shah) speaking for a Division Bench of the Gujarat High Court in Vishwanath Realtor v State of Gujarat observed:

“8.3. Section 45 of the VAT Act confers powers upon the Commissioner to pass the order of provisional attachment of any property belonging to the dealer during the pendency of any proceedings of assessment or reassessment of turnover escaping assessment. However, the order of provisional attachment can be passed by the Commissioner when the Commissioner is of the opinion that for the purpose of protecting the interest of the Government Revenue, it is necessary so to do. Therefore, before passing the order of provisional attachment, there must be an opinion formed by the Commissioner that for the purpose of protecting the interest of the Government Revenue during the pendency of any proceedings of assessment or reassessment, it is necessary to attach provisionally any property belonging to the dealer. However, such satisfaction must be on some tangible material on objective facts with the Commissioner. In a given case, on the basis of the past conduct of the dealer and on the basis of some reliable information that the dealer is likely to defeat the claim of the Revenue in case any order is passed against the dealer under the VAT Act and/or the dealer is likely to sale his properties and/or sale and/or dispose of the properties and in case after the conclusion of the assessment/reassessment proceedings, if there is any tax liability, the Revenue may not be in a position to recover the amount thereafter, in such a case only, however, on formation of subjective satisfaction/opinion, the Commissioner may exercise the powers under Section 45 of the VAT Act.” (emphasis supplied)”

11. In such circumstances referred to above, Mr. Hemani prays that the impugned notices be quashed and set aside and the first appellate authority as well as the Tribunal may be directed to take up the appeals for hearing on their own merits.

12. On the other hand, this writ application has been vehemently opposed by Mr. Utkarsh Sharma, the learned A.G.P. appearing for the State respondents.

13. The stance of the respondents as reflected from the affidavit-in­reply duly affirmed on behalf of the State Tax Officer – II, Unit – 8, Ahmedabad is as under:

“7 I say and submit that the present petitioner is liable to pay tax for the period of Assessment Years 2006-07, 2008-09, 2011-12, 2012- 13, 2013-14 for which details are provided as follows: