Summary: Provisional attachment under the GST regime, as governed by Section 83 of the CGST Act, 2017, allows the government to attach a taxpayer’s property, including bank accounts, to safeguard revenue during ongoing legal proceedings. The Finance Act, 2021 has expanded these powers, allowing attachment orders to remain valid for one year. The process mandates that the Commissioner must believe that the attachment is necessary to protect revenue interests, supported by reliable evidence. The procedure, detailed in Rule 159 of the CGST Rules, 2017, includes issuing an order in Form GST DRC-22 and notifying the taxpayer, who can challenge the attachment. Courts have emphasized the careful and cautious use of this power, with several rulings highlighting that it should not be used to harass taxpayers or hinder their business operations. Provisional attachment is seen as a drastic measure, reserved for cases where there is a legitimate concern that the taxpayer may evade paying the final tax demand. The courts have also clarified that attachment should only be used when there is sufficient documentation to justify it, ensuring that taxpayer rights are protected against unwarranted actions.
The new GST regime enables Government to attach property of taxpayer as per Section 83 of the Central Goods and Service Tax Act, 2017 (herein referred after as ‘CGST Act‘). The Finance Act, 2021 significantly expands powers of provisional attachment. The provisional attachment order remains valid for one year from date it was issued and prevents property from being continuously and permanently attached and regulates misuse of power to temporarily attach by protecting interests and rights of the taxpayer. Also, it takes away debtor’s ability to sell the attached assets.
In case of BR Construction Company v. Additional Director, the Hon’ble Rajasthan High Court noted that Section 83 of the CGST Act deals with provisional attachment to safeguard revenue by allowing the Commissioner to order attachment of the taxpayer’s property, such as bank accounts, if certain proceedings are pending and it is deemed necessary to protect government revenue. According to Section 83(2), the Court ruled that following CBIC’s circular dated 23-02-2021, which also specified that each temporary attachment would expire one year after the order was issued.
PROCESS BEFORE ATTACHING THE PROPERTY:
Proceedings involving tax assessment, inspection, search, seizure, or any other legal process must comply with the provisions of the CGST Act and these proceedings may pertain to Section 62 (assessing non-filers), Section 63 (assessing unregistered individuals), Section 64 (summary assessment), Section 67 (inspection and seizure), Section 73 (demand and recovery for non-payment), Section 74 (demand and recovery for fraud).
Thereafter, the Commissioner needs to come to a conclusion that attachment is required to safeguard revenue’s interests and this belief needs to be supported by reliable information or evidence involving documenting how such a belief was formed and the rationale behind such attachment indicating that the taxpayer could alienate, conceal, or dispose of the property, which would hinder tax collection.
Then, the Commissioner issues a provisional attachment order using Form GST DRC-22 directed towards the relevant person or entity outlines the specifics of the attached property. The taxpayer whose property is being attached needs to be notified of the provisional attachment order which makes sure the taxpayer knows about the action and the reasons for the attachment. The taxpayer has the option to present an argument to the Commissioner in order to dispute the temporary attachment. It is necessary for the Commissioner to take into account the presentation and make a determination and connection should be in proportion to the tax amount. Unjustified difficulties must be prevented and transparency should be maintained through the use of clear documentation and communication ensuring that the actions taken by the tax authorities are visible.
Also taxpayer has option to seek recourse from higher judicial bodies, like hon’ble High Court to dispute the provisional attachment order if they feel it was issued unfairly or without proper justification and the requirement and duration of the attachment will be periodically evaluated to prevent it from exceeding the time needed to protect revenue interests. The tax authorities aim to protect revenue interests by following these steps, while also giving taxpayers a chance to challenge the provisional attachment.
PROCEDURE OF ATTACHMENT:
Rule 159 of CGST Rules, 2017 describes the process for a provisional attachment and subsequent release or restoration of such property that is followed in the interim to guarantee taxpayers’ convenience:
- If the Commissioner chooses to seize any assets, such as a bank account, as laid out in section 83, he must issue an order in FORM GST DRC-22 detailing the attached property.
- The Commissioner must provide a duplicate of the attachment order (in FORM GST DRC-22) to the relevant Revenue Authority or Transport Authority or similar authority to impose a restriction on the specified movable or immovable property, which can only be lifted upon written instructions from the Commissioner “or on expiry of a period of one year from the date of issuance of order under sub-rule (1), whichever is earlier”,
- If a person pays the market price or payable amount, perishable or hazardous property will be released immediately in a FORM GST DRC-23 order upon payment proof.
- If a person does not pay the amount for perishable or hazardous property as mentioned in sub-rule (3), the Commissioner can sell the property and use that amount to cover any outstanding tax, interest, penalty, fee, or other amounts owed by that person.
- If someone’s property is seized, they can file a complaint in FORM GST DRC-22A stating that property should not be seized. The Commissioner can then decide to release the property after listening to the person’s reasons in FORM GST DRC-23.
- The Commissioner can release the property by issuing an order in FORM GST DRC- 23 if it is determined that the property is no longer eligible for attachment.
But this procedure is followed when Section 83 is invoked and there are some conditions which needs to be fulfilled in order to apply Section 83 such as,
- The Commissioner must be “of the opinion that for the purpose of protecting the interest of the government revenue, it is necessary so to do“. In case of M/S Radha Krishan Industries V/s The State of Himachal Pradesh, a provisional attachment can be ordered during the pendency of a procedure under any of these laws, provided the Commissioner has been given authority by the legislature to impose a temporary attachment, is “of the opinion” that to protect the interest of the government revenue, it is necessary “so to do” before using the power, is in writing, contemplates any property, including a bank account belonging to the taxable person, and the rules made in accordance with the provisions of the statute specify the manner in which a provisional attachment is levied. This section emphasizes the importance of gathering an opinion and acting “so to do” to safeguard government revenue before a Commissioner can levy a provisional attachment. This power has harsh consequences, as it allows for temporary attachments of property owned by the taxable person, such as bank accounts. The legislature has used specific statutory language to condition the exercise of this power, recognizing its harsh nature and the grave ramifications that result from the attachment of any property, including the taxable person’s bank account. The statute states that the Commissioner must form an opinion, form an opinion prior to ordering a provisional attachment, believe doing so is necessary to safeguard the government’s revenue interest, issue an order in writing for the attachment of any taxable person’s property, and observe the rules regarding the method of attachment. These elements are necessary for a legitimate use of authority.
- The requirement for provisional attachment is that there must be ongoing proceedings under the designated sections of the Act. In Proex Fashion Private Limited V/s Government of India, the Hon’ble Delhi High Court outlined the conditions for the invocation of Section 83, including the order being passed by the Commissioner, proceeding under Sections 62 or 63 or 64 or 67 or 73 or 74 being pending, and the completion of proceedings under Sections 62, 63, 64 , 73 or 74.
‘PROPERTY’ UNDER SECTION 83-
Also, the provisional attachment can extend to any property belonging to the taxable person. This includes movable property, immovable property and bank accounts. In case of Bindal Smelting Pvt. Ltd. through its Director V/s Additional Director General, Directorate General of Gst Intelligence, it was held that any type of property, including physical, intangible, moveable, and instrument-like property, may be attached under Section 83. A dealer’s working capital is immediately impacted by cash on hand and bank accounts, which are regarded as property. An account with a debit balance cannot be attached using Section 83; instead, money must be attached in the form of savings or FDR. The Hon’ble Court also cited a case named Valerius Industries V/S Union of India and held that it is necessary for assessing authority under Section 83 of the Act can impose provisional attachments before an assessment order if it is necessary to safeguard the revenue interest and must be used cautiously and in moderation, only when there is a legitimate fear that the assessee won’t pay the ultimate demand made after the assessment is completed. This power should only be used when there is adequate documentation on file to support the belief that the assessee is going to sell all or a portion of their property to thwart the final collection of demand. Using the authority granted by Section 83 of the Act in a way that could irreversibly harm the assessee’s business is not acceptable or a means of harassing the assessee. Trading assets and bank accounts can only be attached in extreme cases or as a last resort. The authority may not be justified in using its authority under Section 83 of the Act for provisional attachment if the interest of the revenue is appropriately secured, taking into account the sum paid by reversing the input tax credit. Therefore, Hon’ble court ruled that the respondent can only attach an account if there is a balance in the form of FDR or savings. The power of attachment of a bank account cannot be exercised based on the Authority’s whims and caprices. The Commissioner is responsible for ensuring that the interest of revenue is protected by attaching property or bank accounts. If a property is mortgaged with a bank and the value is less than outstanding dues, provisional attachment is meaningless. If there is no record showing interest in revenue is protected, action should be declared without application of mind and formation of opinion based on cogent material. Attaching a current account with a debit balance does not protect the interest of revenue and may ruin a dealer’s business.
In the case of Arya Metacast (P.) Ltd. v. State of Gujarat, Hon’ble Gujarat High Court observed that it had been repeatedly held that the taxable person’s regular business operations should not be impeded by the appropriate office’s action of provisional attachment. As emphasised by the High Court, the authority may only use the power of provisional attachment under Section 83 if there is a good reason to believe that the assessee will not fulfil the demand that will ultimately be made after the assessment is finished. In such cases, the authority must proceed extremely cautiously. According to Hon’ble Court, the authority granted by Section 83 of the Act cannot be utilised to harass the assessee or in any way that could permanently harm the assessee’s business.
In another case of M/S Vikas Enterprises V/S Commissioner of Central tax (GST), Delhi North & Anr., according to the Hon’ble Delhi High Court, “it is well established that orders of provisional attachment of a taxpayer’s bank accounts or other assets have a serious adverse effect on the taxpayer’s business.”
RIGHTS OF TAXPAYER:
It is often observed that the department unfairly burdens legitimate taxpayers with harassment. Therefore, it is crucial for taxpayers to be knowledgeable about their rights in order to protect themselves from any one-sided actions taken by tax authorities. Initially, taxpayers need to know that the CBIC has released thorough rules for managing summons procedures. These rules state that summons should be a last resort if the taxpayer is uncooperative, should only target senior management if their involvement is indicated after investigation, should not be issued for odd hour appearances, statements must be taken during official hours, and the language in summons should not be overly harsh or embarrassing for the taxpayer and must justify its issuance.
In the case of Lalita V/s Central Goods and Service Tax and Ors.,Hon’ble Allahabad High Court has clarified that Rule 159(5) of the Central Goods and Service Tax Rules, 2017, which provides a remedy to file objections against the attachment of property, must be exhausted before approaching the Court for relief.
- SUMMON TO PRESENT AT ODD HOURS NOT PERMISSIBLE
Although there is no express provision in the law which bars proper officer to require the presence of the person at odd hours, it was held in the case of Agarwal Foundries Vrs UOI by the Hon’ble Telangana High Court, “In our opinion, the respondents cannot contend that they will interrogate the persons suspected of committing any tax evasion as per their sweet will forcibly keeping them in their custody for indefinite period. If it is done, it has to be construed as informal custody and the law relating to an accused in custody has to be expressly or impliedly applied.”
CONCLUSION:
Therefore, in all cases cited above Hon’ble Court is clearly of opinion that how Section 83 has draconian powers so while exercising these powers, there must be a legitimate fear that the taxpayer would fail to pay the final demand that will probably be made after assessment is finished. As such, it ought to be used very carefully and cautiously. Commissioner is required to make sure that revenue interest is safeguarded by the attachment of assets or bank accounts. So provisional attachment under section 83 should only be used in cases where there is adequate documentation to support the assessment that the assessee intends to sell all or a portion of their property in order to thwart ultimate collection of demand and only in extreme cases or as a last resort should trade assets and bank account attachments be used because it has adverse effect on the taxpayer’s business.
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