PROVISIONAL ATTACHMENT UNDER GST LAWS

[Mr. M. GOVINDARAJAN]

Provisional attachment

Provisional attachment is the recourse to the Government, especially in tax matters, to seize the properties of the assessees to protect the interest of the Revenue.  It has been applied in all tax matters and GST is not an exception to this.

Section 83 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides for provisional attachment of properties of the registered persons by the Revenue to protect the interest of the revenue in certain cases i.e. it means provisional attachment cannot be done in all cases.

Section 83(1) of the Act provides that where during the pendency of any proceedings under-

• 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 – powers of inspection, search or seizure; or
• section 73  - determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful-misstatement or suppression of facts; or
• section 74 - determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful-misstatement or suppression of facts,

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.

Section 83(2) provides that every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order.

Provisional attachment order

The procedure for the provisional attachment under Central Goods and Services Tax Rules, 2017 is as below-

• Where the Commissioner decides to attach any property, including bank account he shall pass an order in Form GST DRC-22 to that effect mentioning therein, the details of property which is attached.

• The Commissioner shall send a copy of the order of attachment to the concerned Revenue Authority or Transport Authority or any such Authority to place encumbrance on the said movable or immovable property, which shall be removed only on the written instructions from the Commissioner to that effect.

Disposal of hazardous/perishable nature of goods

If the property attached is of perishable or hazardous nature, and if the taxable person pays an amount equivalent to the market price of such property or the amount that is or may become payable by the taxable person, whichever is lower, then such property shall be released forthwith, by an order in Form GST DRC-23, on proof of payment.

If the taxable person fails to pay the amount in respect of the said property of perishable or hazardous nature, the Commissioner may dispose of such property and the amount realized thereby shall be adjusted against the tax, interest, penalty, fee or any other amount payable by the taxable person.

Objection

Any person whose property is attached may, within seven days of the attachment file an objection to the effect that the property attached was or is not liable to attachment, and the Commissioner may, after affording an opportunity of being heard to the person filing the objection, release the said property by an order in Form GST DRC- 23.

In M/S R.J. EXIM AND ANOTHER VERSUS THE PRINCIPAL COMMISSIONER CENTRAL GOODS AND SERVICE TAX AND 3 OTHERS [2020 (12) TMI 309 - ALLAHABAD HIGH COURT] the order for provisional attachment was issued on 22.07.2020 by the proper officer and informed vide GST DRC-01A requiring the petitioners to deposit the ascertained amount of ₹ 69,67,729/- + interest @ 24% + penalty @ 15% or to submit objection under section 74(1).  An opportunity was also given by fresh notice so that the petitioners may file an objection against the above said ascertainment by 14.08.2020 in Part B of the Form.  The petitioners have not submitted any objections against the same.  Therefore provisional attachment order was issued.  The petitioners challenged the same before the High Court.  The High Court held that there is no manifest error in the order since the petitioners did not file objection despite opportunity was given.

Release of property

The Commissioner may, upon being satisfied that the property was, or is no longer liable for attachment, release such property by issuing an order in Form GST DRC- 23.

End provisional attachment

The provisional attachment order shall come to an end when one year has been lapsed from the date of order.  If the taxable person pays adhoc payments as agreed to by the Revenue or as directed by the High Court the provisional attachment order shall be lifted.  The High Court may direct the Revenue to lift the provisional attachment order considering the facts and circumstances of the case of the taxable person.

In M/S. MUTHARAMMAN IRON AND STEELS VERSUS THE PRINCIPAL ADDITIONAL DIRECTOR GENERAL, THE SENIOR INTELLIGENCE OFFICER, THE BRANCH MANAGER [2021 (4) TMI 970 - MADRAS HIGH COURT] the writ petition has been filed challenging the provisional attachment of bank account of the petitioner pending proceedings for investigation.  The petitioner contended that since all the bank accounts of the petitioner have been attached, the petitioners’ business has been entirely crippled. It would suffice that some bank accounts, sufficient to protect the interest of the revenue, remain under attachment, whereas the remaining may be released to enable conduct of business.  The High Court directed the petitioner to appear before the respondent with its request in this regard.  The petitioner appeared before the Authority.  The petitioner has paid some adhoc payments pending investigation and the provisional attachment has been lifted by the respondent.  The High Court closed the writ petition as the challenge to the provisional attachment does not survive any longer.

In KUSHAL LTD. VERSUS UNION OF INDIA [2019 (12) TMI 1116 - GUJARAT HIGH COURT], the High Court held that on a plain reading of section 83 of the GST Acts, it is clear that a sine qua non for exercise of powers there under is that the proceedings should be pending under section 62 or section 63 or section 64 or section 67 or section 73 or section 74 of the GST Acts.  In the present case, the proceedings under section 67 are no longer pending and pursuant to search, proceedings under any of other sections mentioned in section 83 have not been initiated.  Under the circumstances on the date when the orders of provisional attachment came to be made, the basic requirement for exercise of powers under section 83 of the GST Acts was not satisfied.  The provisional attachment of the bank accounts of the petitioners under section 83 is therefore, not in consonance with the provisions thereof and cannot be sustained.

In UFV INDIA GLOBAL EDUCATION VERSUS UNION OF INDIA AND OTHERS [2020 (9) TMI 583 - PUNJAB AND HARYANA HIGH COURT] the High Court held that the effect of section 83 of the Act shall come to an end as soon as the proceedings pending any of the aforesaid section are over because pendency of the proceedings is necessary so to do in the interest of protecting the Government revenue, it still can pass an order in writing to search any property or even the bank account of the taxable person if the proceedings are initiated in any of the aforesaid provisions and are pending but for the provisions in which the proceedings have earlier been initiated and are over.

Attaching Joint Account

The joint account cannot be attached provisionally since the ownership of the account is more than one.  In SIDDHARTH MANDAVIA VERSUS UNION OF INDIA AND OTHERS [2020 (11) TMI 111 - BOMBAY HIGH COURT], the High Court held that the property including bank account is liable to or provisionally attached must belong to taxable person.  There is no allegation that any money belonging to the petitioner or to his firm has been credited into joint accounts of petitioner with his wife or with his minor son or into the account of his wife.  The account holders are not being tax payers, provisional attachment of their bank accounts is not justified.

Freezing of importer-exporter code

In ‘Siddarth Mandavia’ (supra) the Authorities blocked the importer-exporter code of the petitioner.  The High Court held that the suspension and cancellation of importer-exporter code can be done only under Foreign Trade (Development and Regulation) Act, 1992 by Director General of Foreign Trade or by his authorized officer for reasons specified and in manner provided therein.  The suspension is not done by the officers empowered or authorized.  There is no provision for blocking of importer exporter code, that too by an authority not competent either to suspend or cancel such code.  Such blockage unauthorized and without jurisdiction is to be withdrawn.

Subjective satisfaction

The power is specifically conferred upon the Commissioner to form an opinion under Section 83 of the Act for the purpose of protecting the interest of the Government revenue.  However the subjective satisfaction should be based on some credible materials or information and being a drastic power should be supported by supervening factors and should be used sparingly.  In M/S. JAY AMBEY FILAMENT PVT. LTD. VERSUS UNION OF INDIA [2020 (10) TMI 1214 - GUJARAT HIGH COURT] the High Court held that the attachment of bank account should be resorted to only as a last resort or measure and should not be equated with the attachment in the course of recovery proceedings.  The impugned order of provisional attachment, in this case, is bereft of any reason, there being mechanical exercise of power under section 83.  In the absence of any cogent or credible material, if the subjective satisfaction is arrived at by the authority concerned for the purpose of passing an order of provisional attachment under section 83, then such action amounts to malice in law. 

Paltry amount

A bank account having small balance may not be attached by the Revenue.  In VINODKUMAR MURLIDHAR CHECHANI PROPRIETOR OF M/S CHECHANI TRADING CO. VERSUS STATE OF GUJARAT & 1 OTHER (S) [2021 (1) TMI 795 - GUJARAT HIGH COURT] the two bank accounts of the petitioners to the tune of ₹ 22,065/- have been attached by the Authority.  The High Court asked the Revenue what good purpose the department is going to achieve by provisionally attaching the two bank accounts with balance of a paltry amount of ₹ 22,065/- which would only cause undue hardship to the taxable person.  The High Court passed stricture on the department.  Large volume of litigation is in the High Court despite several judgments explaining section 83 indicated mechanical exercise of power.  It should stop at least as judicial time is wasted on matters where law is well settled.

Escrow account

In ABHI ENGINEERING CORPORATION PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. [2021 (2) TMI 392 - BOMBAY HIGH COURT] the petitioner No. 1 was appointed as sub contractor to carry out the work awarded to respondent No. 3 by Maharashtra State Power Generation Company Limited.  A joint escrow account is opened by Respondent No.3 as first party and petitioner No. 1 as second party.  Out of the deposits made 3% is to be transferred to respondent No. 3 and 97% is to be transferred to petitioner No. 1.  The Department attached this escrow account. The High Court observed that the proceedings under section 74 were initiated against respondent No. 3 only.  The High Court held that the rights of the petitioners were adversely affected by the action taken by the respondents No. 1 and 2 against the respondent no. 3 even if no action was taken or contemplated against petitioners.  The High Court accordingly lifted the provisional attachment insofar as the petitioner No. 1’s share in the escrow account is concerned subject to maintaining credit balance of ₹ 5 lakhs by the petitioner out of its share.  The remaining 3% share belonging to the respondent No. 3 in the escrow account is to remain attached in terms of the provisional attachment order. 

Guidelines for provisional attachment

Based on the decisions of various High Courts have also made observations on the modalities of implementation of provisions of section 83 of the Act by the tax officers, the Board issued guidelines vide circular No. CBEC-20/16/05/2021-GST/359, dated 23.02.2021.  The guidelines prescribe some of type of cases, where provisional attachment can be considered to be resorted to subject to specific facts of the case-

• If the taxable person-

• supplied any goods or services or both without issue of any invoice, in violation of the provisions of the Act or the rules made there under, with an intention to evade tax; or
• issued any invoice or bill without supply of goods or services or both in violation of the provisions of the Act, or the rules made there under; or
• availed input tax credit using the invoice or bill referred to in clause (b) or fraudulently availed input tax credit without any invoice or bill; or
• collected any amount as tax but has failed to pay the same to the Government beyond a period of three months from the date on which such payment becomes due; or
• fraudulently obtained refund; or
•  passed on input tax credit fraudulently to the recipients but has not paid the commensurate tax.

The guidelines also prescribe what sort of assets to be attached provisionally.  The guidance in this regard are-

• The provisional attachment can be made only of the property belonging to the taxable person, against whom the proceedings mentioned under section 83 of the Act are pending.
• The value of attached property should be as near as possible to the estimated amount of pending revenue against such person.
• More than one property may be attached in case value of one property is not sufficient to cover the estimated amount of pending revenue against such person.
• Movable property should normally be attached only if the immovable property, available for attachment, is not sufficient to protect the interests of revenue.
• It should be ensured that such attachment does not hamper normal business activities of the taxable person. 
• In cases where the movable property, including bank account, belonging to taxable person has been attached, such movable property may be released if taxable person offers, in lieu of movable property, any other immovable property which is sufficient to protect the interest of revenue.

The investigation and adjudication are to be completed at the earliest, well within the period of attachment, so that the due liability of tax as well as interest, penalty etc. arising upon adjudication can be recovered from the said taxable person and the purpose of attachment is achieved.

All such property as is by the Code of Civil Procedure, 1908, exempted from attachment and sale for execution of a Decree of a Civil Court shall be exempt from provisional attachment

Amendment to section 83(1)

The Finance Act, 2021 enlarges the scope of Section 83(1).  The newly substituted Section 83(1) provides that where, after the initiation of any proceeding under-

• Chapter XII – Assessment;
• Chapter XIV – Inspection, search, seizure and arrest; or
• Chapter XV – Demands and Recovery,

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 (levy of penalty), in such manner as may be prescribed.

However the newly substituted section 83(1) has not come into effect.

Conclusion

Pre-assessment attachment of property, including bank account, even if provisional is a drastic measure.  Its sole purpose is to protect the interest of Government revenue.  It cannot be used as a punitive measure.   It is a serious invasion into the private domain of a taxpayer.  It cannot be issued as matter of course.  Application of mind by the Authorities is required before issuing the provisional attachment order.