Provisional attachment of the property – Non friendly approach of CBIC

In the case of Radha Krishan Industries v. the State of HP (2021) 35 J.K.Jain’s GST & VR 367, the Hon’ble Supreme Court held that, the power of provisional attachment of the property of the taxable person is draconian in nature and the conditions which are prescribed by the statute for a valid exercise of the power must be strictly followed. After passing the final assessment order u/s 74, the order of provisional attachment must cease to subsist. Therefore, after the final order u/s 74 of the HPGST Act was passed on 18.2.2021, the order of provisional attachment must come to an end.

The Hon’ble Supreme Court further held that the formation of an opinion by the Commissioner for attaching the property 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. The expression “necessary so to do for protecting the government revenue” u/s 83(1) implies that the interests of the government revenue cannot be protected without ordering a provisional attachment. In the facts of the present case, there was a clear non-application of mind by the Respondent to the provisions of Section 83 of the HPGST Act, rendering the provisional attachment illegal. There has been a breach of the mandatory requirement of Rule 159(5) of the HPGST Rules and the Respondent was clearly misconceived in law in coming into conclusion that the Respondent. had a discretion on whether or not to grant an opportunity of being heard; The Respondent 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; While quashing aside the judgment of the Hon’ble HP High Court dated 1.1.2021 by the Hon’ble Supreme Court, the orders of provisional attachment were also quashed.

Analysis.─

1. Formation of an opinion by the Commissioner─ The formation of an opinion by the Commissioner for attaching the property 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. The expression “necessary so to do for protecting the government revenue” u/s 83(1) implies that the interests of the government revenue cannot be protected without ordering a provisional attachment.

2. Opportunity of being heard─ The Govt. is duty bound to deal with the objections to the attachment by passing a reasoned order.

3.Pendency of proceedings─ The Hon’ble Supreme Court analysed S.83(1)  reading as under;

S.83(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.

It has been rightly observed by the Hon’ble Supreme Court that;

The order of provisional attachment was passed before the proceedings against the Appellant were initiated under Section 74 of the HPGST Act. Section 83 of the HPGST Act requires that there must be pendency of proceedings under the Section 62 (assessment of non-filers of returns) or Section 63 (assessment of unregistered persons) or Section 64 (summary assessment in certain special cases) or Section 67 (power of inspection, search and seizure) or Section 73 (determination of tax in non-fraud cases) or Section 74 (determination of tax in fraud cases) against the taxable person whose property is sought to be attached.

Recently, in the case of Kanal Enterprise v. State of Gujarat(2021) 35 J.K.Jain’s GST & VR 8 (Guj), it was held that there is no power vested in the authorities to invoke the provisions of S.83 during the pendency of the proceedings instituted u/s 71(1) of the Act. In fact, there cannot be any proceedings, which could be instituted u/s 71 of the Act. Therefore, the order of attachment u/s 83 of the Act was quashed.

In another case of Proex Fashion Pvt. Ltd. v. Govt. of India (2021) 35 J.K.Jain’s GST & VR 141(Del), the order attaching the Bank account giving reference of S.71, was declared ultra vires the statutory powers of the respondent and was quashed since S.71─Acess to Business was not covered within the scope of provisional attachment of property u/s 83

It is worth mentioning that in the case of Union of India v. Kushal Ltd & Anr. (2021) 35 J.K.Jain’s GST & VR 94 (SC), the Hon’ble Supreme court has kept in abeyance the phrase “No pendency of the proceedings during Investigation”. This case is still pending in the Supreme Court.

To nullify all these judgments announced in favour of the party, S.83(1) has been amended by the CBIC/Govt. by plugging correct interpretation by different courts in favour the Taxable person in the wake of fundamental right of citizens of India to carry on the business smoothly. And this shows non friendly approach of the CBIC leading to lot of public money being wasted on legal matters by the Govt.

While carrying out amendment to S.83(1), the Govt. has completely ignored the adverse comments made in the judgment of Vinodkumar Murlidhar v. State of Gujarat (2021) 35 J.K.Jain’s GST & VR 95 (Guj), wherein the court while quashing the orders of provisional attachment of two bank accounts, commented adversely on Mechanical exercise of the power by the assessing authorities and held that Mechanical exercise of the power u/s 83, CGST Act, for Attachment of bank accounts of a going concern is an abuse to the legal provisions without application of mind.

The amended S.83(1) as amended by the Finance Act, 2021, is as under;

“83(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 Govt. 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.”.

By this amendment;

The words;

i) “after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV”,

have been substituted for the following words;

“during the pendency of any proceedings under section 62 or section 63 or section 64 or section 67 or section 73 or section 74”,

and

ii) the words “or any person specified in sub-section (1A) of section 122”, have been added.

Meaning thereby that;

i) the scope of provisional attachment has been increased to a great extent as under;

a) initiation of any proceedings u/s 59 to S.64, 67 to S.72 & S.73 to 84 are now covered the purpose of provisional attachment of property.

S.71, which deals with “Access to Business Premises”, has now been included under the phrase “initiation of any proceeding”.