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2025 (6) TMI 340 - HC - GSTMaintainability of petition - availability of alternative remedy - Attachment of bank accounts - prior intimation under Form DRC-01A was not provided within the stipulated time period prescribed in terms of CGST Act and the same was issued only one day prior to the issuance of the SCN - HELD THAT - As can be noticed from the order passed by the Supreme Court during the pendency of this writ the proceedings in the impugned SCN has continued and an order under Section 74 of the CGST Act has been passed on 20th June 2024. The Petitioner had already availed of its appellate remedy under Section 107 of the CGST Act in respect of the said order. The only issue that currently remains is in respect of the freezing of the bank account. In the opinion of this Court after the order passed by the Supreme Court and the culmination of the proceedings in respect of the SCN which was impugned the order freezing the bank account would also automatically get lifted. Since the Petitioner has already now availed of the appellate remedy assailing the final order passed in the SCN proceeding the order dated 28th May 2024 freezing the bank account of the Petitioner shall stand lifted. Petition disposed off.
The core legal questions considered in this judgment are:
(i) Whether the provisional attachment of the petitioner's bank account under Section 83 of the Central Goods and Services Tax Act, 2017 (CGST Act) was validly ordered, particularly considering the requirement that proceedings must have been initiated prior to such attachment and that the Commissioner must form a tangible opinion on the necessity of attachment to protect government revenue; (ii) Whether the issuance of the Show Cause Notice (SCN) under Section 74 of the CGST Act was valid, especially in light of the contention that prior intimation under Form DRC-01A was not provided within the prescribed time; (iii) The procedural safeguards available to the petitioner under Rule 159(5) of the CGST Rules, 2017, including the right to be heard and to file objections against the attachment; (iv) The effect of the final order passed under Section 74 of the CGST Act on the provisional attachment ordered under Section 83; (v) The scope and effect of appellate remedies available under Section 107 of the CGST Act in relation to the provisional attachment and the final order. Issue-wise detailed analysis: 1. Validity of Provisional Attachment under Section 83 of the CGST Act The legal framework governing provisional attachment is primarily Section 83 of the CGST Act, which permits the Commissioner to provisionally attach property, including bank accounts, after initiation of proceedings under Chapters XII, XIV, or XV, if the Commissioner is of the opinion that such attachment is necessary to protect government revenue. The Court relied heavily on the Supreme Court's decision in Radha Krishan Industries v. State of Himachal Pradesh, which clarified several key points:
In the present case, the Court found that the summons under Section 70 had been issued prior to the attachment order, satisfying the requirement of initiation of proceedings. The Commissioner had recorded an opinion based on investigation revealing suspicious and fraudulent payments and wrongful availment of Input Tax Credit (ITC) amounting to Rs. 87,54,083/-, which constituted tangible material. The Court rejected the petitioner's contention that no opinion was formed or that no proceedings had commenced. The Court also noted the petitioner's right to file objections under Rule 159(5), and the Commissioner's duty to consider such objections through a reasoned order. 2. Validity of the Show Cause Notice (SCN) and Prior Intimation The petitioner challenged the SCN dated 20th June, 2024, on the ground that prior intimation under Form DRC-01A was not provided within the stipulated time, as it was issued only one day before the SCN. The Court did not extensively delve into this issue but limited the notice to this extent, indicating that the petitioner's grievance regarding the timing of the intimation was acknowledged and would be considered as part of the ongoing proceedings. 3. Procedural Safeguards under Rule 159(5) of the CGST Rules The Court emphasized the mandatory nature of procedural safeguards under Rule 159(5), which entitles the person whose property is attached to submit objections and be heard. The Supreme Court in Radha Krishan Industries had held that the Commissioner's discretion to grant hearing is non-existent and that failure to provide such an opportunity vitiates the attachment. In the present case, the Court observed that the petitioner had the liberty to file objections and seek further reasons from the Commissioner, and that the Commissioner was duty-bound to decide such objections in accordance with law. 4. Effect of Final Order under Section 74 on Provisional Attachment The proceedings under the SCN culminated in a final order under Section 74 of the CGST Act on 20th June, 2024. The Supreme Court's order in the related Special Leave Petition (SLP) clarified that once a final order under Section 74 is passed, the provisional attachment under Section 83 automatically ceases to have effect. The Court reiterated this principle and held that since the petitioner had already availed of appellate remedies under Section 107 against the final order, the provisional attachment order freezing the bank account must be lifted. The Court directed the Department to communicate this to the bank within one week. 5. Appellate Remedies under Section 107 The Court noted that the petitioner had filed an appeal under Section 107 against the final order passed under Section 74. The Supreme Court in Radha Krishan Industries had held that an appeal against the provisional attachment order under Section 83 is not available, but a writ petition under Article 226 is maintainable. In contrast, appeals are available against final orders under Section 74. The Court acknowledged that the petitioner's challenge to the final order would be adjudicated on its own merits without influence from observations made during the provisional attachment stage. Competing Arguments and Court's Treatment The petitioner argued that the attachment was illegal as no proceedings had commenced and no opinion was formed by the Commissioner. The Court rejected this, relying on the summons issued under Section 70 and tangible material forming the basis of the Commissioner's opinion. The petitioner's contention regarding lack of timely intimation before the SCN was noted but not decided conclusively, leaving it open for further consideration. The Court balanced the government's interest in protecting revenue with the petitioner's procedural rights, emphasizing strict adherence to statutory safeguards and the necessity of tangible material for attachment. Significant holdings and core principles established: "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." "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." "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." "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." "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." "The petitioner 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." Final determinations:
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