Provisional attachment under section 83 of Central Goods and Services Tax Act 2017 in the light of latest Apex Court pronouncement in the case of Radha Krishan Industries Vs State of Himachal Pradesh.
The Goods and Services Tax (hereinafter referred as ‘GST’) was introduced in India in the year 2017 w.e.f. 01.07.2017. GST is a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax. The purpose of GST is to mitigate ill effects of cascading or double taxation in a major way and pave the way for a common national market.
GST from the consumer’s point of view is the biggest advantage would be in terms of reduction in the overall tax burden on goods, which was estimated to be around 25%-30% in the pre GST regime. It would also imply that the actual burden of indirect taxes on goods and services would be much more transparent to the consumer. Introduction of GST would also make Indian products competitive in the domestic and international markets owing to the full neutralization of input taxes across the value chain of production and distribution.
However, this Input Tax Credit (hereinafter referred as “ITC”) had become the most crucial thing in post GST regime. Many investigations had started and led to raids in issues relating to ITC claims on fake invoices etc. In some cases these investigation led to attachment of bank accounts of the business entities. Section 83 of Central Goods and Services Tax (CGST) Act 2017 deals with provisional attachment, which is a stringent provision as attachment of bank account means all the financial affairs of the business entity come to halt. Such a situation even threatens very existence of business.
As per 83 of CGST Act . Provisional attachment to protect revenue in certain cases. –
(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.
(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).
However, on 20th of April 2021 in the matter of M/s. Radha Krishan Industries v. the State of HP in Civil Appeal No 1155 of 2021, the Hon’ble Supreme Court of India while dealing with provisions related provisional attachment held that, the power to order a provisional attachment of the property of the taxable person including a bank account is draconian in nature and it was further held that the conditions in the statute for a valid exercise of the power must be strictly fulfilled. This appeal raises significant issues of public importance, engaging as it does, the interface between citizens and their businesses with the fiscal administration. Legislation enacted for the levy of goods and services tax confers a power on the taxation authorities to impose a provisional attachment on the properties of the assessee, including bank accounts.
The appellant challenged the orders issued on 28 October 2020 by the Joint Commissioner of State Taxes and Excise, Parwanoo’ provisionally attaching the appellant’s receivables from its customers. The provisional attachment was ordered while invoking Section 83 of the Himachal Pradesh Goods and Service Tax Act, 2017 and Rule 159 of Himachal Pradesh Goods and Service Tax Rules, 2017. While dismissing the writ petition on grounds of maintainability the High Court was of the view that the appellant had an ‘alternative and efficacious remedy’ of an appeal under Section 107 of the HPGST Act.
The following issues arise in the case:
(i) Whether a writ petition challenging the orders of provisional attachment was maintainable under Article 226 of the Constitution before the High Court?
(ii) If the answer to (i) is yes, whether the orders of provisional attachment constitute a valid exercise of power?
Sub-Section (1) of Section 83 can be bifurcated into several parts. The first part provides an insight on point of time or at which stage the power can be exercised. The second part specifies the authority to whom the power to order a provisional attachment is entrusted. The third part defines the conditions which must be fulfilled to validate the power or ordering a provisional attachment. The fourth part indicates the manner in which an attachment is to be leveled. The final and the fifth part defines the nature of the property which can be attached.
Now in this backdrop, it becomes necessary to emphasize that before the Commissioner can levy a provisional attachment, there must be a formation of “the opinion” and that it is necessary “so to do” for the purpose of protecting the interest of the government revenue. The power to levy a provisional attachment is draconian in nature. By the exercise of the power, a property belonging to the taxable person may be attached, including a bank account. The attachment is provisional and the statute has contemplated an attachment during the pendency of the proceedings under the stipulated statutory provisions noticed earlier. An attachment which is contemplated in Section 83 is, in other words, at a stage which is anterior to the finalization of an assessment or the raising of a demand. Conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power.
The language of the statute indicates first, the necessity of the formation of opinion by the Commissioner; second, the formation of opinion before ordering a provisional attachment; third the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue; fourth, the issuance of an order in writing for the attachment of any property of the taxable person; and fifth, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of attachment. Each of these components of the statute are integral to a valid exercise of power. In other words, when the exercise of the power is challenged, the validity of its exercise will depend on a strict and punctilious observance of the statutory preconditions by the Commissioner. While conditioning the exercise of the power on the formation of an opinion by the Commissioner that “for the purpose of protecting the interest of the government revenue, it is necessary so to do”, it is evident that the statute has not left the formation of opinion to an unguided subjective discretion of the Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue.
Sub-Section (1) of Section 107 makes it abundantly clear that an appeal to the Appellate Authority is available against a decision or order passed under the HPGST Act or CGST Act by an “adjudicating authority. Sub-Section (2) confers a revisional power on the Commissioner in regard to the legality or propriety of a decision or order passed by an adjudicating authority. From the above definition, it is evident that the expression ‘adjudicating authority’ does not include among other authorities, the Commissioner. In the present case, the narration of facts indicates that on 21 October 2020, the Commissioner had in exercise of his powers under Section 5(3) made a delegation inter alia to the Joint Commissioner of State Taxes and Excise inrespect of the powers vested under Section 83(1). The Joint Commissioner, in other words, was exercising the powers which are vested in the Commissioner under Section 83(1) to order a provisional attachment in pursuance of the delegation exercised on 21 October 2020. This being the position, clearly the order passed by the Joint Commissioner as a delegate of the Commissioner was not subject to an appeal under Section 107(1) and the only remedy that was available was in the form of the invocation of the writ jurisdiction under Article 226 of the Constitution. The High Court was, therefore, clearly in error in declining to entertain the writ proceedings.
The order of the Joint Commissioner contains absolutely no basis for the formation of the opinion that a provisional attachment was necessary to safeguard the interest of the revenue. No tangible material has been disclosed. The record clearly reveals a breach of the mandatory preconditions for the valid exercise of powers under Section 83 of the HPGST Act. The order of provisional attachment under Section 83(1) is to be issued “during the pendency of any proceedings under Section 62 or Section 63 or Section 64 or Section 67 or Section 73 or Section 74”. In the present case, the notice to show cause under Section 74(1) of the HPGST Act was issued to the appellant on 27 November 2020. After the High Court dismissed the writ petition, this Court was moved under Article 136 of the Constitution. Notice was issued in the Special Leave Petition on 4 February 2021 returnable on 19 February 2021. A day before the case was listed, on 18 February 2021, an ex parte order was passed by the Joint Commissioner under Section 74 (9) of the HPGST Act confirming the demand of Rs 8,30,27,218 in the notice to show cause. It is evident from the facts 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 Act requires that there must be pendency of proceedings under the relevant provisions against the taxable person whose property is sought to be attached. Given that there were no pending proceedings against the appellant, the mere fact that proceedings under Section 74 had concluded against GM Powertech, would not satisfy the requirements of Section 83. Thus, the order of provisional attachment was ultra vires Section 83 of the Act
(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 Frevenue” 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) 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;
(ix) 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;
(x) 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;