Provisional attachment of any property can be made to enforce or protect recovery of tax demands under the GST law.
Where the proper officer consider it expedient in the interest of revenue, he may for reasons to be recorded in writing may require the taxable person to pay the demanded amount within a period shorter than 3 months as he may decide.
Section 78 of the GST Act provides that after passing of an order under the Act, the taxable person is required to deposit the amount of demand within 3 months of date of service of such order to him. Further, it provides that in case of failure of taxable person to deposit the amount within permitted time, the proper officer may initiate the recovery proceedings for recovery of such amount from taxable person.
Where any sum payable under the GST Act has not been paid, the proper officer has following different modes to recover the defaulted sum from such person. These modes have been provided in section 79(1) of the GST Act and are as follows:
(a) May deduct or require any other officer to deduct the defaulted sum from any money payable to such defaulter.
(b) May recover or require any other officer to recover the amount by detaining and selling any goods belonging to such defaulter.
(c) May give notice in writing to any debtor or future debtor of such defaulter to pay money to the Government on account of such person.
(d) On authorization by Competent Authority, seize any movable and/or immovable property belonging to or under the control of defaulting person and detain till the time defaulted amount is paid by such person. In case amount is not paid within 30 days of such seizure, may cause the sale of such property and from the sale proceeds, satisfy the amount payable and the costs including cost of sale and render any surplus amount to such person.
(e) May write to Collector of the District, where such person resides or do business or holds property to recover the amount from such person as arrears of land revenue.
(f) May file an application with the Appropriate Magistrate for proceedings against such person for recovery of such sum as it were a fine imposed by such Magistrate.
Provisional attachment
Provisional attachment can be made by tax authorities to protect revenue in certain cases. Section 83(1) of GST law prescribes that in case 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 order the provisional attachment of any property belonging to the taxable person. The provisional attachment order made by Commissioner under section 83(1) of the GST Act remains effective till one year from the date of such order. On expiry of one year from the date of such order, it will cease to have any effect.
Statutory provisions
Section 83 provides that during the pendency of any proceedings under certain sections of the CGST Act, 2017 the Commissioner by order in writing attach provisionally any property for a period of one year from the date of the order for provisional attachment.
Section 83 reads as under:
(1) Where, during the pendency of any proceeding 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).
Sub- Section (1) above has been substituted by Finance Act, 2021:
“(1) 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.”.
The above amendment has been made to provide that provisional attachment shall remain valid for the entire period starting from the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV till the expiry of a period of one year from the date of order made thereunder.
The above amendment is yet to be notified for coming into force (as on 30th June, 2021).
A perusal of the above provisions and amendment made by Finance Act, 2021 would reveal that:
A) Prior to amendment
- Provisional attachment could be made where proceedings were pending u/s 62, 63, 64, 67, 73 or 74 of the CGST Act, 2017.
- Attachment could be done to property belonging to the taxable person only.
B) After amendment by Finance Act, 2021
- Provisional attachment could be made where proceedings are pending under any section of Chapter XII, XIII or XV of the CGST Act, 2017
- Provisional attachment shall be valid for entire period starting from initiation of proceedings till the expiry of one year from date of Order
- Property belonging to the taxable person or any person specified in section 122(1A) of the CGST Act can be attached, i.e. person who retains benefit of a specific transaction(s) and at whose instance such transaction is conducted.
Thus, the scope of section 83 for provisional attachment of property has been enlarged by the Finance Act, 2021.
Recent pronouncements
Madras High Court in Marg Human Resources Pvt. Ltd. v. The Principal Additional Director General, The Senior Intelligence Officer (2021) 5 TMI 980 (Madras), quashed the attachment of bank accounts and held that attachment which results in adverse affect on right to business can not be made. It was alleged that petitioner company had fraudulently availed input tax credit based on fictitious invoices to the tune of Rs. 21 crore. The company which employed about 15000 security guards deployed in various units in Chennai and Karnataka, submitted that attachment of bank accounts had completely strangled its business.
It was contended that section 67 of CGST Act, 2017 cannot be invoked against the future receivables so as to strangulate the entire business of the petitioner. Further, against the bail order dated 19.02.2021 in Crl.O.P.Nos.2175 and 2176 of 2021, the Directors of the petitioner company had moved to the Supreme Court insofar as the condition, which mandates recovery/payment of the entire balance amount in four installments. The manner in which the entire recovery proceedings are being initiated were contrary to Section 73 and Section 74 of the CGST Act, 2017. Further, more than Rs. 5 crore had already been deposited.
On the other hand, Revenue’s argument was that the petitioner has indulged in large-scale fraud and therefore, the department was compelled to initiate proceedings under Section 67 of the CGST Act, 2017. Under Section 83 of the CGST Act, 2017, the department was entitled to order provisional attachment of any assets to protect the interest of the revenue. It was open for the petitioner to move to the appropriate authority under Rule 159 of the CGST Rules, 2017, against the impugned attachment orders. The attachment orders merely freeze the power to debit the account and there is no restriction for receiving the amount. It was also submitted that for the last few months, the customers/clients of the petitioner company have directly paid the salaries/wages to the employees including the amount due under the Provident Funds Act, and therefore the continuance of the impugned attachment orders will be of no prejudice to the petitioner.
The court observed that the petitioner has already discharged 27% of the proposed and estimated tax due. There is a mechanism provided under the Act for proper adjudication of the tax due and determination under Sections 73 and 74 of the Act. Therefore, there was no meaning in attaching the bank accounts any further. The respondents had already commenced the investigation in October 2020. The respondents can issue a notice under Section 73 of the CGST Act, 2017 and thereafter, determine the amount due and recover the amounts.
Thus, it was held that attachment under the GST law which adversely affects the right to business can not be made. The court thus quashed the attachment of bank accounts of the petitioner.
In Radha Krishan Industries v. State of Himachal Pradesh (2021) 48 GSTL 3; (2021) 1 TMI 101; (2021) 126 taxmann.com 218 (Himachal Pradesh), a writ petition was filed to :
a) Issue a writ petition under Article 226 of the Constitution of India in the nature of Certiorari quashing impugned order dated 21.10.2020 passed by the Commissioner, respondent delegating his powers absolutely, being inter alia, illegal, arbitrary, misconceived, erroneous and even violative of principles of natural justice, equity and fair play.
b) Issue a civil writ petition under Article 226 of the Constitution of India in the nature of certiorari quashing the proceedings initiated by the respondent under section 83 by provisionally attaching the amount receivable by the petitioner from its customer while issuing Form DRC-22 being inter alia, illegal, arbitrary, misconceived, erroneous and even violative of principles of natural justice equity and fair play.
c) Issue a writ in the nature of mandamus, directing the respondent to revoke the provisional attachment and not to resort to further coercive measures against the petitioner.
The court observed that where the statutory authority has not acted in accordance with the provisions of the Act or in defiance the fundamental principles of judicial procedure or has resorted to invoke the provisions, which are repealed or where an order has been passed in total violation of the principle of natural justice, but the High Court will not entertain a petition under Article 226 of the Constitution of India, if efficacious remedy is available to the aggrieved person or where the statute under which the action complained of has been taken in mechanism for redressal of grievance still holds the field, meaning thereby that when a statutory form is created by law for redressal of grievance, a writ petition should not be entertained ignoring the statutory dispensation.
In view of the alternative remedy, court held that the writ petitioner has not only efficacious remedy, rather alternative remedy under the GST Act, and therefore, the present petition is not maintainable.
Aggrieved by the Himachal Pradesh High Court judgment, assessee moved a petition in Supreme Court which overruled the high court order and held that provisional attachment of property including bank accounts only after formation of opinion based on tangible material as power is draconian in nature. [Radha Krishan Industries v. State of Himachal Pradesh (2021) 4 TMI 837; (2021) 48 GSTL 113; (2021) 127 taxmann.com 26 (SC)].
In the said SLP, apex court framed the following legal issues :
1) Whether a writ petition challenging the orders of provisional attachment was maintainable under article 226 of the constitution before the High Court.
2) If yes, whether the orders of provisional attachment constituted a valid exercise of power?
The following is the summary of findings of the apex court judgment:
(i) The Joint Commissioner while ordering a provisional attachment under section 83 was acting as a delegate of the Commissioner in pursuance of the delegation effected under Section 5(3) and an appeal against the order of provisional attachment was not available under Section 107 (1);
(ii) The writ petition before the High Court under Article 226 of the Constitution challenging the order of provisional attachment was maintainable;
(iii) The High Court has erred in dismissing the writ petition on the ground that it was not maintainable;
(iv) The power to order a provisional attachment of the property of the taxable person including a bank account is draconian in nature and the conditions which are prescribed by the statute for a valid exercise of the power must be strictly fulfilled;
(v) The exercise of the power for ordering a provisional attachment must be preceded by the formation of an opinion by the Commissioner that it is necessary so to do for the purpose of protecting the interest of the government revenue. Before ordering a provisional attachment the Commissioner must form an opinion on the basis of tangible material that the assessee is likely to defeat the demand, if any, and that therefore, it is necessary so to do for the purpose of protecting the interest of the government revenue.
(vi) The expression “necessary so to do for protecting the government revenue” implicates that the interests of the government revenue cannot be protected without ordering a provisional attachment;
(vii) The formation of an opinion by the Commissioner under Section 83(1) must be based on tangible material bearing on the necessity of ordering a provisional attachment for the purpose of protecting the interest of the government revenue;
(viii) In the facts of the present case, there was a clear non-application of mind by the Joint Commissioner to the provisions of Section 83, rendering the provisional attachment illegal;
(ix) Under the provisions of Rule 159(5), the person whose property is attached is entitled to dual procedural safeguards:
(a) An entitlement to submit objections on the ground that the property was or is not liable to attachment; and
(b) An opportunity of being heard;
There has been a breach of the mandatory requirement of Rule 159(5) and the Commissioner was clearly misconceived in law in coming into conclusion that he had a discretion on whether or not to grant an opportunity of being heard;
(x) The Commissioner is duty bound to deal with the objections to the attachment by passing a reasoned order which must be communicated to the taxable person whose property is attached;
(xi) A final order having been passed under Section 74(9), the proceedings under Section 74 are no longer pending as a result of which the provisional attachment must come to an end; and
(xii) The appellant having filed an appeal against the order under section 74(9), the provisions of sub-Sections 6 and 7 of Section 107 will come into operation in regard to the payment of the tax and stay on the recovery of the balance as stipulated in those provisions, pending the disposal of the appeal.
The Supreme Court observed that writ petition before H.P. High Court under article 226 of Constitution challenging order of provisional attachment was maintainable. The High Court had erred in dismissing writ petition on ground that it was not maintainable. Further, the power to order a provisional attachment of property of taxable person including a bank account is draconian in nature and conditions which are prescribed by statute for a valid exercise of power must be strictly fulfilled. The exercise of power for ordering a provisional attachment must be preceded by formation of an opinion by Commissioner that it is necessary so to do for purpose of protecting interest of government revenue. Before ordering for a provisional attachment, the Commissioner ought to form an opinion on basis of tangible material that assessee is likely to defeat demand, if any, and that therefore, it is necessary so to do for purpose of protecting interest of government revenue. The formation of an opinion by Commissioner under section 83(1) must be based on tangible material bearing on necessity of ordering a provisional attachment for purpose of protecting interest of government revenue
The apex court further noted that there was a clear non-application of mind by Joint Commissioner. There was a breach of mandatory requirement of Rule 159(5) of CGST Rules, 2017 and Commissioner was clearly misconceived in law in coming into conclusion that he had a discretion on whether or not to grant an opportunity of being heard. The Commissioner shall be duty bound to deal with objections to attachment by passing a reasoned order which must be communicated to taxable person whose property would be attached.
It was decided that the appeal be allowed and order of High Court was held to be liable to be set aside. Writ petition filed by appellant under article 226 of Constitution stood allowed by setting aside order of provisional attachment.
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Dr. Sanjiv Agarwal,FCA,FCS
Neha Somani, FCA, B.Com
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