2023 (4) TMI 1414 - HC - GST

Violation of principles of natural justice - legal authority under the Central Goods and Services Tax Act 2017 (CGST Act) to unilaterally debit and transfer amount from the petitioner s bank account without the petitioner s consent or prior notice - HELD THAT - Section 79 of the CGST Act deals with recovery of tax and lays down the modes for recovery. These are deduction from the money owed to such person which is under the control of proper officer; to recover the amount by detaining or selling the goods which belong to such person which are under the control of the proper officer; under Section 79 (1)(c)(i) of the CGST Act by issuing notice in writing to any other person from whom the money is due to such person or who holds or may subsequently hold such money for or on account of such person. As regards section 79(1)(c)(i) of the CGST Act is concerned it is akin to garnishee proceeding as it can be seen from further procedure that needs to be followed. In the present case the Respondents-authorities have proceeded to unilaterally deduct the amount from the Petitioner s bank account by giving instructions to the Bank and transferring it to the Electronic Cash Ledger of the Petitioner. Having failed to demonstrate the legal basis for such course of action the learned counsel for the Respondents on instructions states that the amount deposited in this Court may be permitted to be withdrawn so that it will be deposited in the bank account of the Petitioner. The Officer who has made a statement shall file an affidavit to that effect and within how much time the amount would be credited to the account of the Petitioner. Upon such affidavit being filed within two weeks Registrar (Judicial) will permit the Respondents to withdraw the amount. After withdrawal the same shall be credited to the bank account of the Petitioner within a period of two weeks. Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

• Whether the respondents had the legal authority under the Central Goods and Services Tax Act, 2017 (CGST Act) to unilaterally debit and transfer Rs. 62,32,400/- from the petitioner's bank account without the petitioner's consent or prior notice.
• The applicability and scope of Section 79(1)(c)(i) of the CGST Act regarding recovery of tax by issuing notice to a third party holding money on account of the taxpayer, and whether this provision authorizes direct debit from a taxpayer's bank account without following prescribed procedures.
• Whether the respondents' failure to inform the petitioner about the debit transaction from the petitioner's bank account constitutes an abuse of power and violation of principles of natural justice.
• The propriety of the respondents' conduct in light of instructions issued to tax officers not to use force or coercion against taxpayers and the need for accountability of officers exercising powers under the CGST Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Authority of Respondents to Debit Bank Account Without Consent or Notice

Relevant Legal Framework and Precedents: Section 79 of the CGST Act governs the modes of recovery of tax dues. Particularly, Section 79(1)(c)(i) empowers a proper officer to recover tax by issuing a notice in writing to any other person who holds or may subsequently hold money on account of the taxpayer. This provision is akin to garnishee proceedings, requiring adherence to procedural safeguards including issuance of notice and opportunity to the taxpayer.

Court's Interpretation and Reasoning: The Court observed that the respondents debited the petitioner's bank account without the petitioner's instructions and without any prior communication or notice. The Court found prima facie that the respondents' action of unilaterally withdrawing funds without informing the account holder was "high handedness and gross abuse of power." The Court emphasized that the CGST Act does not confer authority to tax authorities to directly debit a taxpayer's bank account without following due process.

Key Evidence and Findings: The petitioner's bank account was frozen pursuant to an earlier order but was not unfrozen until threatened with contempt. Subsequently, Rs. 62,32,400/- was debited and transferred by the bank to the respondents via RTGS without any instructions from the petitioner. The respondents admitted that no communication was sent to the petitioner post-debit.

Application of Law to Facts: The Court analyzed that Section 79(1)(c)(i) requires issuance of notice to the third party holding money, which in this case would be the bank, but does not authorize direct debit without following due process or without informing the taxpayer. The respondents' unilateral action bypassed the safeguards intended under the statute.

Treatment of Competing Arguments: The respondents contended that Section 79(1)(c)(i) empowered them to recover the tax dues by instructing the bank to debit the account. The petitioner argued that this provision was inapplicable to direct debits without notice. The Court sided with the petitioner, noting the absence of any legal authority or procedural compliance for such action.

Conclusion: The respondents lacked lawful authority to debit the petitioner's bank account without consent or notice, and their action constituted an abuse of power.

Issue 2: Failure to Inform the Petitioner of the Debit Transaction

Relevant Legal Framework and Precedents: Principles of natural justice and procedural fairness require that a taxpayer be informed of any adverse action affecting their rights or property, including debiting of bank accounts. The CGST Act and related instructions emphasize transparency and communication.

Court's Interpretation and Reasoning: The Court expressed strong disapproval of the respondents' failure to inform the petitioner after debiting the amount. It highlighted that taxpayers often discover such actions only from banks, which is oppressive and constitutes harassment. The Court underscored the need for tax authorities to communicate with taxpayers promptly and transparently.

Key Evidence and Findings: The Court noted the absence of any communication from the respondents to the petitioner after the debit. The petitioner only became aware of the debit through the bank's communication.

Application of Law to Facts: The respondents' omission to notify the petitioner violated procedural fairness and the spirit of the instructions issued to tax officers to avoid coercion and harassment.

Treatment of Competing Arguments: The respondents justified their action by alleging non-cooperation from the petitioner, but the Court found that even if non-cooperation existed, it did not justify secret debiting without notice.

Conclusion: The respondents' failure to inform the petitioner was unjustified and amounted to harassment and misuse of authority.

Issue 3: Accountability of Officers and Compliance with Instructions Against Coercion

Relevant Legal Framework and Precedents: The Court referred to an instruction dated 25.05.2022, directing all officers not to use force or coercion against taxpayers and prescribing strict disciplinary action for wrongdoing.

Court's Interpretation and Reasoning: The Court emphasized the need for accountability of the officer who ordered the debit. It directed the concerned officer to file a personal affidavit explaining the legal basis for the debit and the failure to inform the petitioner. The Court warned of possible action against the officer if the explanation was unsatisfactory.

Key Evidence and Findings: The affidavit-in-reply filed by respondents relied on Section 79(1)(c)(i) but failed to adequately justify the unilateral debit and lack of communication.

Application of Law to Facts: The Court's direction for personal affidavit and potential disciplinary action underscores the principle that tax authorities must act within legal bounds and adhere to procedural safeguards, failing which they are liable to consequences.

Treatment of Competing Arguments: The respondents did not provide a satisfactory explanation for the conduct, prompting the Court's stringent measures.

Conclusion: Officers exercising statutory powers must comply with legal procedures and instructions against coercion, and are accountable for misuse of authority.

Issue 4: Return of Debited Amount and Restoration of Petitioner's Rights

Relevant Legal Framework and Precedents: The principle of restitution of property or money wrongly taken is well established. The CGST Act does not authorize permanent appropriation of funds without due process.

Court's Interpretation and Reasoning: The Court directed the respondents to deposit the entire amount with the Court's Registrar. Subsequently, on filing of an affidavit by the officer confirming the timeframe for crediting the amount back to the petitioner's bank account, the Court permitted withdrawal of the amount for refund to the petitioner within two weeks.

Key Evidence and Findings: The respondents agreed to comply with the Court's directions to restore the amount.

Application of Law to Facts: The Court's order ensures restoration of the petitioner's rights and prevents unjust enrichment of the tax authorities without lawful basis.

Treatment of Competing Arguments: The respondents' consent to refund indicates acknowledgment of procedural irregularity.

Conclusion: The amount wrongly debited must be restored to the petitioner expeditiously.

3. SIGNIFICANT HOLDINGS

"We fail to understand, prima facie, as to how the authorities get this power to take away amount from anybody's account without account holder's permission or even after taking away the money, they would not even consider it necessary to inform the account-holder that money from their account has been debited. This is nothing but high handedness and gross abuse of power."

"This according to us is nothing but oppressing a taxpayer by misusing their position and amounts to harassment of all taxpayers."

"The concerned officer who instructed the bank to debit the amount of petitioner shall file his personal affidavit explaining therein under what authority of law that he got removed the money from petitioner's bank account or directed the bank to debit the bank account and why did he do it without even informing petitioner even after giving instructions to the bank."

Core principles established include:

• Tax authorities must act strictly within the legal framework prescribed by the CGST Act and cannot unilaterally debit taxpayer bank accounts without consent or due process.
• Issuance of notice and communication to the taxpayer is mandatory before recovery actions affecting their bank accounts.
• Failure to inform taxpayers of such actions constitutes abuse of power and harassment, violating principles of natural justice.
• Officers exercising statutory powers are accountable and subject to disciplinary action for misuse or overreach.
• Wrongful debiting of amounts must be reversed promptly to restore taxpayers' rights.

Final determinations on each issue were that the respondents' unilateral debit was unauthorized and abusive, the failure to notify the petitioner was improper, the responsible officers must explain their actions under oath, and the wrongly debited amount must be restored expeditiously.