Case Law Details
Sterne India Pvt. Ltd. Vs Union of India (Karnataka High Court)
Karnataka High Court quashes Provisional Attachment of Bank Accounts under GST In the matter of Sterne India Pvt. Ltd. Vs Union of India and others, Writ Petition no. 12875/2020 vide its judgment dated 08.09.2021. Advocate for the Petitioner was Sh. Dharmendra Kumar Rana.
GST Sections/Rules: Section 74 CGST Act, 2017, Section 83 CGST Act, 2017, Section 107 CGST Act, 2017 and Rule 159(5) of CGST Rules, 2017
Fact of the case in a brief:
The petitioner, Sterne India Pvt. Ltd. is stated to be a Company registered under the Karnataka Goods and Service Tax Act, 2017 and engaged in the Business to Business (B2B) e-commerce trading in ‘white goods’ including mobile handsets. It is made out in the petition that the respondent was conducting a certain investigation in respect of M/s. Pal Overseas, a registered entity under the GST Act and also as regards other entities relating to the alleged issuance of bogus/fake invoices without a supply of goods and were seeking to claim Input Tax Credit of Goods and Service Tax. It is stated that the petitioner was purchasing the mobile handsets from these suppliers and was selling them to its customers. The Respondent No. 2 on 02.09.2020 conducted a search at the head office of the petitioner. The Respondent no. 2 attached the bank account of the petitioner in exercise of power under section 83 of the Central Goods & Service Tax Act, 2017.
The counsel for the petitioner submitted that the said factum of provisional attachment of the bank account was learned by the petitioner only from their banker. It is further submitted that the necessary representation came to be made by the petitioner in terms of Rule 159(5) of the CGST Rules seeking the release of attachment and de-freezing of bank accounts, but such request was neither considered nor any order was passed as required under the applicable Rules.
Judgment referred: Radha Krishan Industries V State of Himachal Pradesh and others reported in (2021) SCC Online SC 334
Decision of the Hon’ble Court: Quashed Provisional Attachment of Bank Accounts by making the following observations:
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“31. In the present case, it must be noticed that the taxable entity to which the proceedings were taken out is an entity other than the petitioner and in the context of which search has been conducted with respect to the petitioner. Admittedly, no proceedings have been initiated under Section 74 of CGST Act as against the petitioner till date. What must also be noticed is that though the statement of objections of the respondent Authority seeks to make out a case that the proceedings under Section 74 of CGST Act are sought to be instituted and in the context of which the provisional attachment under Section 83 of CGST Act is resorted to, the impending proceedings under Section 74 of the CGST Act cannot be a ground to exercise power under Section 83 for the provisional attachment. If the only ground made out in the statement objections and the very order of attachment at Annexure-A is the proceedings under Section 74 of the CGST Act, even if there are other proceedings that may be considered to be pending against the petitioner as long as the proceedings under Section 74 are not initiated by issuing a show-cause notice, the order of attachment purportedly relating to the proceedings under Section 74 cannot be upheld. The respondent Authority cannot be permitted to contend that any other proceedings contemplated under Section 83 of CGST Act have been initiated, as it is made out in the provisional order of attachment enclosed at Annexure-A that proceedings have been initiated under Section 74 of the CGST Act. Any exercise of power as may be permitted statutorily which has an adverse consequence on the petitioner, would have to be strictly construed.
32. Insofar as the contention of learned counsel for the Revenue that reasonable belief under Section 83 of CGST Act can be stated to have been fulfilled in light of the non-adherence to the statement stated to have been made before the Authorities committing to reverse the Input Tax Credit and pay the amount cannot be accepted, as opinion of the Commissioner as contemplated under Section 83 of CGST Act is that the provisional attachment of property, including the bank account is necessary for protecting the interests of Government Revenue. Such opinion must be reflected in some proceedings, which proceedings are also not placed before this Court.
33. In light of wide discretion granted to the Commissioner for formation of an opinion, greater the power and wider the discretion, the same is to be exercised with greater circumspection. If power is sought to be exercised, it has to be on the basis of substantive material, which is absent in the present case. The contention of learned counsel for the Revenue regarding the statements made by the representative of petitioner Company forming necessary basis for formation of an opinion of the Commissioner cannot be accepted, as the formation of the Commissioner’s opinion must be reflected in some proceedings and no such proceedings are placed before this court.
34. Also taking note of the law laid down in the case of Radha Krishan Industries (supra), no case is made out for upholding the provisional order of attachment.
35. The statement of learned counsel for the petitioner to the effect that, if any order is passed under Section 74 of CGST Act, in light of the requirement while considering grant of stay under Section 107 of CGST Act, the petitioner is obligated to pay 10% of the disputed tax amount and would be made good when the order under Section 74 of CGST Act is passed, is placed on record. Learned counsel for the petitioner further submits that the petitioner would co-operate with the respondent Authorities in the investigation.
36. In light of the discussion as above, the point for consideration is answered in the affirmative. Accordingly the petition is allowed and the order at Annexure-A dated 21.09.2020 is set aside. It is open to the respondent No.2 in light of the order passed, to issue necessary communication to the respondent Bank forthwith to lift the attachment, more so, in light of the period of one year as contemplated under Section 83(2) of the CGST Act coming to an end on 21.09.2021.”
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioner has sought for setting aside the provisional attachment of bank accounts maintained with HDFC bank as per the communication dated 21.09.2020 at Annexure-A and has sought for appropriate direction to the respondent No.2 to defreeze the petitioner’s bank accounts.
2. The petitioner is stated to be a Company registered under the Karnataka Goods and Service Tax Act, 2017 and engaged in the Business to Business (‘B2B’) e-commerce trading in ‘white goods’ including mobile handsets. It is made out in the petition that the respondent No.2 was conducting certain investigation in respect of M/s.Pal Overseas, a registered entity under the Goods and Service Tax Act (‘GST Act’) and also as regards other entities relating to the alleged issuance of bogus/fake invoices without supply of goods and were seeking to claim Input Tax Credit of Goods and Service Tax. It is stated that the petitioner was purchasing the mobile hand sets from these suppliers and was selling to its customers. The respondent No.2 on 02.09.2020 conducted a search at the Head Office of the petitioner. It is submitted that during the search, the respondent No.2 issued summons to Mr.Rishi Raj Singh Rathore, Director and Mr.Nishant Gupta, Associate Director of the petitioner Company and had recorded their statements.
3. It is further made out in the petition that the said representatives of petitioner Company responded to the notice, appeared before the Authorities and also made their statements, which has been duly recorded.
4. It is made out in the petition that on 21.09.2020, the respondent No.2 had sought details of the bank accounts of the petitioner which was provided on the same day. It is stated that the respondent No.2 has attached the bank accounts of the petitioner purportedly in exercise of power under Section 83 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’ for brevity).
5. Learned counsel for the petitioner submits that the said factum of provisional attachment of the bank account was learnt by the petitioner only from their banker. It is further submitted that the necessary representation came to be made by the petitioner in terms of Rule 159(5) of the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’ for brevity) seeking release of attachment and defreezing of bank accounts, but such request was neither considered nor any order was passed as required under the applicable Rules.
6. The respondents have filed their statement of objections and have contended that in the course of investigation relating to massive GST evasion on the basis of fake invoices as the petitioner was conducting business with several fake Firms and had availed fraudulent Input Tax credit, the petitioner’s premises was searched on 02.09.2020 and the statement of Directors of the petitioner’s Company were recorded.
7. It is further asserted that Mr. Rishi Raj Singh Rathore had represented that he would abide by the proceedings and had agreed to reverse the credit as applicable and that he had begun the process of paying Rs.35.00 lakhs from their cash balance.
8. It is further submitted that however neither the amount of Rs.35.00 lakhs had been paid nor any Input Tax Credit had been reversed by the petitioner even after 15 days of the recording of the statement referred to above. Accordingly, it is stated that the provisional attachment of bank account of the petitioner was effected on 21.09.2020.
9. It is further asserted that the letter received of the petitioner was received by the respondent on 13.10.2020 and was not within the time period prescribed under Rule 159(5) of the CGST Rules and no condonation of delay regarding the same was sought and that therefore, the question of consideration of representation of the petitioner as contemplated under Rule 159(5) of CGST Rules is not permissible.
10. Various other contentions on the merits of the matter have been raised. A specific assertion is also made by the respondents at para-10 of their statement of objections that the proceedings under Section 67 of the CGST Act were initiated. It is further submitted that the proceedings under Section 74 of CGST Act are contemplated and the matter is still at the stage of investigation.
11. At the time of hearing of the matter, learned counsel for the petitioner has advanced detailed arguments and has relied on the judgment of Apex Court in the case of Radha Krishan Industries v. State of Himachal Pradesh and Others reported in (2021) SCC OnLine SC 334 and contends that a detailed consideration has been made regarding the procedure to be adhered to while effecting the provisional attachment of property, including the bank account belonging to a taxable person and that the pre-conditions for exercise of proceedings under Section 83 of CGST Act is that the pendency of proceedings under Sections 62, 63, 64, 67, 73 and 74 of CGST Act, that the Commissioner must form an opinion and that for the purpose of protecting the interest of government revenue, it must be necessary the that provisional attachment has to be resorted to.
12. It is contended that the mode of attachment is as prescribed in Form GST DRC-22 and the manner of such provisional attachment is prescribed under Rule 159 of CGST Rules. It is further pointed out that Rule 159(5) of CGST Rules also provides for an opportunity that a person whose property is attached is permitted to file objections to make out a case that the property attached was not liable for attachment and after affording an opportunity of being heard to the affected person, there could be an order of release of the said property by an order in Form GST DRC-23.
13. It is contended that such procedure as provided under Rule 159 of CGST Rules ought to have been strictly adhered to, as the order of provisional attachment has serious economic consequence on the petitioner and there has been a total non-compliance of the procedure prescribed under Section 159 of CGST Rules insofar as there was no notice of attachment as contemplated under Rule 159(2) of CGST Rules.
14. It is submitted that an essential requirement for exercise of power under Section 83 of CGST Act would be the formation of an opinion by the Commissioner that such provisional attachment is required to protect the interests of Government Revenue only and the material supporting such formation of opinion is not forthcoming in the present case and accordingly, the order of attachment is liable to be set aside. It is further contended that the representation made by the petitioner has not been disposed of under Rule 159(5) of the CGST Rules.
15. Though the other contention regarding the merits of the proceedings initiated as against the petitioner has been raised, it is sufficient if the consideration of the present petition is limited to the legality of the action of respondent Authority in provisionally attaching the petitioner’s bank accounts.
16. Learned counsel appearing for the respondents at the time of arguments has relied on the notice dated 21.09.2020 which is produced alongwith the memo dated 08.09.2021 and would assert countering the submission of learned counsel for the petitioner that there has been a communication of the order of attachment as per the document produced alongwith the said memo.
17. After hearing both sides, the following point arises for consideration:-
“Whether the action of respondents in the present case of provisionally attaching the bank accounts of the petitioner by exercise of power under Section 83 of CGST Act is liable to be interfered with?”
18. At the very outset, it must be noted that the order of provisional attachment is required to be communicated to the party affected and this requirement is necessary for a meaningful exercise of the right conferred under Rule 159(2) of CGST Rules.
19. It must be noted that while learned counsel for the petitioner has drawn attention to Annexure-A dated 21.09.2020 addressed to the Bank Manager, HDFC Bank, Bengaluru regarding the provisional attachment of bank account of the petitioner in exercise of power under Section 83 of the CGST Act, it is pointed out that such communication does not have any copy addressed to the petitioner.
20. The petitioner has also specifically asserted that no such communication was sent to him and that he came to know about the same only from his bankers. As regards such assertion, the only response of learned counsel appearing for the respondent Authority is that there has been a communication to the petitioner and has placed reliance on the letter dated 21.09.2020 which contains a handwritten endorsement indicating that a copy has been sent to the petitioner’s address, viz., M.s.Sterne India Pvt. Ltd., 249, 19th Main Road, HSR Layout, Sector-4, Bengaluru. However, there is no material forthcoming to establish that such communication has been sent to the petitioner, nor any material has been produced to indicate that such notice has been served on the petitioner.
21. What is of significance is the opportunity to be afforded to the affected person under Rule 159(5) of CGST Rules which provides that a person whose property is attached may, within seven days of the attachment under Sub-Rule (1), file objections to the effect that the property attached was or is not liable for attachment, and the Commissioner may, after affording an opportunity of being heard to the person permitting him to file objections, may pass an order releasing the property in Form GST DRC-23.
22. As pointed out by the Apex Court at para-57 of its judgment in the case of Radha Krishan Industries (supra) Sub-Rule (5) of Rule 159 of CGST Rules provides a right of post-provisional attachment consisting of right of (1) submitting an objection to the attachment (2) an opportunity of being heard.
23. Obviously, the right contemplated under Rule 159(5) of CGST Rules would require that the order of provisional attachment has to be communicated to the petitioner, without which, the question of exercising right seeking for lifting of the provisional attachment as contemplated under Sub-Rule (5) would be negated.
24. In the present case, undisputedly, there is no evidence to indicate the receipt of notice by the petitioner, despite assertion by the respondent Authority that the communication has been sent and in the absence of any material to indicate receipt of the same by the petitioner by furnishing any acknowledgement, the question of presuming receipt of communication relating to the order of provisional attachment does not arise. There are certain doubts that have also arisen as regards to the version of respondent Authority as regards the document at Annexure-A produced by the petitioner with the petition, which does not have any endorsement relating to sending of copy to the petitioner, while identical copy produced by the respondent Authority contains a handwritten endorsement.
25. In light of the dispute that has arisen and in light of absence of any material to indicate conclusively that the communication was sent to the petitioner to his address by producing any cogent material enclosing the postal receipt, there is no reason to accept the assertion of Revenue.
26. Insofar as the specific assertion of the petitioner that he has made out a representation to the respondent Authority seeking for lifting of provisional attachment under Rule 159(5) of CGST Rules by representation dated 13.10.2020, it must be noted that the receipt of such representation is not in dispute. The only point raised by the Revenue is that the representation ought to have been made within seven days as contemplated under Rule 159(5) of CGST Rules and in light of absence of condonation of delay, the said representation was not considered.
27. It must be noted that the exercise of right under Rule 159(5) of CGST Rules presupposes the communication of provisional order of attachment. The fact that the petitioner came to know of the said provisional attachment order from his bankers would be of no relevance vis-à-vis in the absence of demonstration by the respondent Authority with legally acceptable material to communicate such order, the contention taken that the representation to seek the relief as provided under Rule 159(5) of CGST Rules is belated, cannot be accepted.
28. In the facts of the present case, as noticed above, there was an obligation for the respondent Authority to have considered the representation of the petitioner under Rule 159(5) of the CGST Rules. Though learned counsel for the respondent Authority would submit that even if the procedural lapse as pointed out by the petitioner were to be accepted, the matter requires to be remanded for fresh consideration of the representation of petitioner dated 13.10.2020 as per law. What requires to be noticed is that the order of attachment is dated 21.09.2020. Section 83(2) of the CGST Act provides that every provisional attachment shall cease to have the effect after expiry of one year from the date of the order made under Sub-Section (1) of Section 83 of CGST Act. As the period of one year would come to an end on 21.09.2021, it would be travesty of justice, if the matter is remanded back keeping the option open for the respondent Authority to pass orders on the representation of the petitioner, which theoretically would entitle the respondent, if circumstances are so made out to reject lifting of such attachment. Much water has flown in terms of lapse of time from the date of passing of the order of provisional attachment till this day, i.e. the date of this order. Even otherwise, merits of the matter being dealt with, does not warrant any such remand to the respondent Authority in light of the discussion infra.
29. Another important contention taken by the petitioner is that the requirement of provisional attachment as contained under Rule 159 of CGST Rules has to be strictly adhered to, which would require the passing of order in Form GST DRC-22 to the affected person to enable him the filing of objections, and passing an order in Form GST DRC-23 after affording an opportunity of being heard. It must be noticed that the order of attachment requires to be done in a particular manner as per the prevailing Rules and such requirement has to be strictly complied with, as if an act is required to be performed in a particular manner by the statute, it must be done in that manner only or not at all.
30. A perusal of the provisional order of attachment would prima facie reveal that the same is not in the requisite Form. The Form GST DRC-22 has been adverted to by the Apex Court in the decision in the case of Radha Krishan Industries (supra) and the said Form would also indicate that necessary averments relating to the proceedings launched against a taxable person is required to be contained in such notice.
31. In the present case, it must be noticed that the taxable entity to which the proceedings were taken out is an entity other than the petitioner and in the context of which search has been conducted with respect to the petitioner. Admittedly, no proceedings have been initiated under Section 74 of CGST Act as against the petitioner till date. What must also be noticed is that though the statement of objections of the respondent Authority seeks to make out a case that the proceedings under Section 74 of CGST Act are sought to be instituted and in the context of which the provisional attachment under Section 83 of CGST Act is resorted to, the impending proceedings under Section 74 of the CGST Act cannot be a ground to exercise power under Section 83 for the provisional attachment. If the only ground made out in the statement objections and the very order of attachment at Annexure-A is the proceedings under Section 74 of the CGST Act, even if there are other proceedings that may be considered to be pending against the petitioner as long as the proceedings under Section 74 are not initiated by issuing a show-cause notice, the order of attachment purportedly relating to the proceedings under Section 74 cannot be upheld. The respondent Authority cannot be permitted to contend that any other proceedings contemplated under Section 83 of CGST Act have been initiated, as it is made out in the provisional order of attachment enclosed at Annexure-A that proceedings have been initiated under Section 74 of the CGST Act. Any exercise of power as may be permitted statutorily which has an adverse consequence on the petitioner, would have to be strictly construed.
32. Insofar as the contention of learned counsel for the Revenue that reasonable belief under Section 83 of CGST Act can be stated to have been fulfilled in light of the non-adherence to the statement stated to have been made before the Authorities committing to reverse the Input Tax Credit and pay the amount cannot be accepted, as opinion of the Commissioner as contemplated under Section 83 of CGST Act is that the provisional attachment of property, including the bank account is necessary for protecting the interests of Government Revenue. Such opinion must be reflected in some proceedings, which proceedings are also not placed before this Court.
33. In light of wide discretion granted to the Commissioner for formation of an opinion, greater the power and wider the discretion, the same is to be exercised with greater circumspection. If power is sought to be exercised, it has to be on the basis of substantive material, which is absent in the present case. The contention of learned counsel for the Revenue regarding the statements made by the representative of petitioner Company forming necessary basis for formation of an opinion of the Commissioner cannot be accepted, as the formation of the Commissioner’s opinion must be reflected in some proceedings and no such proceedings are placed before this Court.
34. Also taking note of the law laid down in the case of Radha Krishan Industries (supra), no case is made out for upholding the provisional order of attachment.
35. The statement of learned counsel for the petitioner to the effect that, if any order is passed under Section 74 of CGST Act, in light of the requirement while considering grant of stay under Section 107 of CGST Act, the petitioner is obligated to pay 10% of the disputed tax amount and would be made good when the order under Section 74 of CGST Act is passed, is placed on record. Learned counsel for the petitioner further submits that the petitioner would co-operate with the respondent Authorities in the investigation.
36. In light of the discussion as above, the point for consideration is answered in the affirmative. Accordingly the petition is allowed and the order at Annexure-A dated 21.09.2020 is set aside. It is open to the respondent No.2 in light of the order passed, to issue necessary communication to the respondent Bank forthwith to lift the attachment, more so, in light of the period of one year as contemplated under Section 83(2) of the CGST Act coming to an end on 21.09.2021.
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Of contextual relevance(: comment posted @https://taxguru.in/…/gst-refund…/comment-page-1/…
wrt the concept of ‘may’ and its inherent potential for misuse, unwittingly or otherwise, by an authority, of ‘Discretion’ impliedly vested in any , among others , administrating authority of a statute !?!
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