Now a days we have seen that  the GST department is frequently using the powers which is envisaged to it in the sec.83 of the CGST act w.r.t. to provisional attachment of the properties of the tax payer . Now voices have arose against frequent and general use of the such harsh powers even in those cases where such attachment is not justified at all .  The budget amendment proposed by the Finance Act 2021 further added fuel to it . The Finance Act 2021 has  enlarges 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 Sec. 122 (1A) of the CGST Act . 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. Though such amendments are made with a view to check  GST frauds but again we must understand that for such few miscreants peoples we can not create hardship for the whole community of genuine tax payers. The law must provide to safeguard the interest of the genuine taxpayer.

In contrast to the above the recent judgement of the Gujrat High Court  in the case of Vinodkumar Murlidhar Chechani Vs. State of Gujarat [2021] 123 329 (Gujarat) , the court came up heavily on the revenue and while delivering the judgement in the favour of the assessee made a remark that   “that mechanical exercise of power under section 83 should stop at earliest. Just because some proceedings are initiated under section 67 by itself may not be sufficient to arrive at subjective satisfaction that it is necessary to provisionally attach property for purpose of protecting interest of revenue. An order of provisional attachment cannot be as a matter of course. It is one of drastic measures which authority may be compelled to take if situation demands for purpose of protecting interest of revenue.”

Before we go further into the topic we must know what is the actual provision under Sec.83 and under what circumstances and from whose permission such drastic powers can be exercised.

Extract of Section 83 of the CGST Act,2017 

(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. { The proposed new section by the Finance Act 2021 : 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.}

(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).

Extract of  Rule 159 of the CGST Rules , 2017 

159. (1) Where the Commissioner decides to attach any property, including bank account in accordance with the provisions of section 83, he shall pass an order in FORM GST DRC-22 to that effect mentioning therein, the details of property which is attached.

(2) The Commissioner shall send a copy of the order of attachment to the concerned Revenue Authority or Transport Authority or any such Authority to place encumbrance on the said movable or immovable property, which shall be removed only on the written instructions from the Commissioner to that effect.

(3) Where the property attached is of perishable or hazardous nature, and if the taxable person pays an amount equivalent to the market price of such property or the amount that is or may become payable by the taxable person, whichever is lower, then such property shall be released forthwith, by an order in FORM GST DRC-23, on proof of payment.

(4) Where the taxable person fails to pay the amount referred to in sub-rule (3) in respect of the said property of perishable or hazardous nature, the Commissioner may dispose of such property and the amount realized thereby shall be adjusted against the tax, interest, penalty, fee or any other amount payable by the taxable person.

(5) Any person whose property is attached may, within seven days of the attachment under sub-rule (1), file an objection to the effect that the property attached was or is not liable to attachment, and the Commissioner may, after affording an opportunity of being heard to the person filing the objection, release the said property by an order in FORM GST DRC-23.

(6) The Commissioner may, upon being satisfied that the property was, or is no longer liable for attachment, release such property by issuing an order in FORM GST DRC-23.

Now look at the wordings of Rule 159(5) of the CGST Rules,2017,  it clearly envisages that the commissioner must pass the order of attachment in Form DRC-22 and also it must give an opportunity of being heard to the asseessee and he is required to respond within seven days from the date of attachment . Here it is relevant to note that such time limit is reckoned from the date of attachment and not from the date of service of notice to the assessee . Here question arises that the many a times GST Network do not work up to the satisfaction level and the documents/ notices can not be viewed/ downloaded due to the system errors. Certainly from the tax payer point of view such delays will prove big hurdle and proving such delays before the authorities are another big task.

Now  If we analyse the section 83 read with rule 159 of the CGST Rules  we can came up with following conclusions:

(1) Firstly before exercising the powers under section 83 there must be pendency of the proceedings u/s 62 or 63 or 64 or 67 or 73 or 74. { The proposed change by the Finance Bill , 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 Commissioner must form an opinion in the interest of revenue that it is necessary to do so .

(3) it must be in writing.

(4) The property relates to the taxable person. {The proposed change by the Finance Bill , 2021 enlarges the powers by covering of taxable person as well as any other person as specified in Sec. 122 (1A) of the CGST Act, 2017}

(5) The provisional attachment ceases to effect after the one year from the date of the order of such provisional attachment . It is also pertinent to mention here that after the elapse of one year if the department feels in the interest of revenue to further extend provisional attachment then it has to issue fresh provisional attachment order with all prescribed procedures i.e. the opportunity being heard etc. In the recent case of M/s Abhi Engineering Corporation Pvt. Ltd, the honorable Bombay High Court lifted the  provisional attachment petitioner’s share in escrow account subject to maintaining credit balance of Rs. 5,00,000. In this particular case the department has issued fresh provisional attachment order against the assessee after the elapse one year of earlier provisional attachment order and then assessee filed writ petition in Bombay High Court and honorable court granted the relief .

(6) The proper opportunity of being heard must be given as per the rule 159(5) of the CGST Rules .

We must appreciate the fact the opinion of the Commissioner must be based upon the logical conclusions or belief , strictly based on facts of the case and must prove the test of reasonability.  No authority under the law is allowed to take the action upon his own belief which is  not based upon actual facts and circumstances . It must also go through the test of necessity in the given circumstances .

In the entire exercise of provisional attachment power , the opinion of the Commissioner is the  axis in which the whole proceeding will move on . The revenue when demanded by the assessee must provide the reasons to the it and here is the point where litigation generally starts . The apex court made its ruling on this subject very laud and clear . It has been held by the Supreme Court in Sheonath Singh’s case [AIR 1971 SC 2451], that the Court can examine the materials to find out whether an honest and reasonable person can base his reasonable belief upon such materials although the sufficiency of the reasons for the belief cannot be investigated by the Court. The formation of the opinion by the authority should reflect intense application of mind with reference to the material available on record that it had become necessary to order provisional attachment of the goods or the bank account or other articles which may be useful or relevant to any proceedings under the Act.

In another important judgment of apex court in the case of Bhikhubhai Vithalabhai Patel, the Supreme Court observed in para 32 as under:

“32. We are of the view that the construction placed on the expression “reason to believe” will equally be applicable to the expression “is of opinion” employed in the proviso to Section 17 (1) (a) (ii) of the Act.

The basic principles in this regard are clearly expressed and explained by Prof. Sir William Wade in Administrative Law (Ninth Edn.) in the chapter entitled ‘abuse of discretion’ and under the general heading the principle of reasonableness’ which read as under :

“The common theme of all the authorities so far mentioned is that the notion of absolute or unfettered discretion is rejected. Statutory power conferred for public purposes is conferred as it were upon trust, not absolutely- that is to say, it can validly be used only in the right and proper way which Parliament when conferring it is presumed to have intended. Although the Crown’s lawyers have argued in numerous cases that unrestricted permissive language confers unfettered discretion, the truth is that, in a system based on the rule of law, unfettered governmental discretion is a contradiction in terms. The real question is whether the discretion is wide or narrow, and where the legal line is to be drawn. For this purpose everything depends upon the true intent and meaning of the empowering Act.

The powers of public authorities are therefore essentially different from those of private persons. A man making his will may, subject to any rights of his dependents, dispose of his property just as he may wish. He may act out of malice or a spirit of revenge, but in law this does not affect his exercise of his power. In the same way a private person has an absolute power to allow whom he likes to use his land, to release a debtor, or, where the law permits, to evict a tenant, regardless of his motives. This is unfettered discretion. But a public authority may do none of these things it acts reasonably and in good faith and upon lawful and relevant grounds of public interest. The whole conception of unfettered discretion is inappropriate to a public authority, which possesses powers solely in order that it may use them for the public good. There is nothing paradoxical in the imposition of such legal limits. It would indeed be paradoxical if they were not imposed.”

So at the conclusion of the topic ,  my humble opinion is that  the government must come up with the necessary guidelines in this regard so that the power conferred by the Act can be used only in those cases in which it is just and fit for the provisional attachment . This will also reduce the litigation cost and precious time to the government as well as to the tax payer.

This article is an endeavor to share some learnings obtained. The views expressed are of the author and are intended solely for informational purpose only.   Though due care is taken while preparing the document, possibility of errors cannot be ruled out. Expert guidance, where required and  reference to the original act, notification, circular, rules etc is highly recommended.


(About the author – The author is a member of ICAI and can be reached at Email: [email protected]  ,  Mobile: 09936424523, , Twitter : @CA_NikhilKumar, FB: canikhillko  Office: Flat No. 102, First Floor , Vasundhra Complex, Ring Road, Sector-16, Indira Nagar, Lucknow-226016 , U.P., India  )

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March 2021