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PROVISIONAL ATTACHMENT DIFFERENCE BETWEEN INCOME TAX ACT, 1961 AND CGST ACT, 2017

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PROVISIONAL ATTACHMENT DIFFERENCE BETWEEN INCOME TAX ACT, 1961 AND CGST ACT, 2017
By: Mr.M. GOVINDARAJAN
December 6, 2019
All Articles by: Mr.M. GOVINDARAJAN       View Profile
  • Contents

Attachment of property

Attachment of property is prevailing in all tax laws even in pre GST regimes. It is also postulated in GST laws. While the investigation or search or seizure is ongoing, in order to protect the interests of the Revenue Section 83 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides for the attachment of property by the Revenue. Section 83 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 - inspection, search and seizure; or
  • section 73 – determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful misrepresentation 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 utilized for any reason other than fraud or any willful misrepresentation 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. Such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made.

Issue

The issue to be discussed in this article about the difference between the procedure adopted by the Income Tax Act and the Act for the attachment of property with reference to decided case law.

Case law

In ‘Valerius Industries v. Union of India’ – 2019 (9) TMI 618 - GUJARAT HIGH COURT the petitioner filed a writ petition before the High Court challenging-

  • the provisional attachment of –
  • stock of goods to the tune of ₹ 1.60 crores; and
  • the petitioner’s current bank account;
  • blockage of input tax credit; and
  • demand of ₹ 1.60 crores by the Revenue

consequent on inspection and search of the premises of the petitioner.

The petitioner mainly challenged the above said orders on the grounds of non following the procedures in the Act and against to the principles of natural justice, since no proper opportunity of being heard was given to the petitioner.

The High Court considered the submissions made by both the parties. The provisional attachment order, in this case, has been passed by the State Tax Officer – 1, Vadodara. The Revenue contended that this officer along with two officers have been conferred powers for provisional attachment. The High Court observed that the plain reading of section 83 makes it clear that the powers under section 83 have been conferred by the legislature upon the Commissioner. The subjective satisfaction that for the purpose of protecting the interest of the Government revenue, it is necessary that the goods should be provisionally attached should that of the Commissioner. The Commissioner has been conferred with power to pass an order in writing for the purpose of attaching provisionally and property including the bank account belonging to the taxable person.

The High Court framed the question for its consideration is as to whether the Commissioner could have delegated his power to three officers. The Revenue contended that as per section 5(3) of the State Act the Commissioner is given powers to delegate his powers to any other officer who is subordinate to him subject to such conditions and limitations. The High Court observed that so far as the Act is concerned the power of delegation under section 5(3) of the Ac is within the Commissioner in the Board and not the Commissioner of Central Tax whereas so far as section 5(3) of the State Act is concerned the Commissioner would be the Commissioner of State Tax. The High Court held that if the provisions of the Central tax would have been applicable to the fact of the present case then there would have been no difficulty in quashing the order passed by the Commissioner of State Tax delegating his power of section 83 to the subordinate officers on the ground that the same is without jurisdiction.

The High Court observed that section 83 makes I clear that it is the Commissioner’s opinion which is relevant. The Legislature has thought fit to confer his power upon the Commissioner. Such powers could not have been delegated to the three subordinate officers by the Commissioner.

The initiation of proceedings under section 67 of the Act itself is not sufficient to provisionally attach the property for the purpose of protecting the interest of the Revenue. The power is specifically conferred upon the Commissioner to form such opinion. The subjective satisfaction should be based on some credible materials or information.  Attachment of property being a drastic power should be supported by supervening factors and should be used sparingly. The attachment of bank account and trading assets should be resorted only as a last resort and the same should not be equated with the attachment in the course of recovery proceedings.

The High Court observed that section 83 of the Act is in pari materia with the provisions of section 281B of the Income Tax Act, 1961. The High Court analyzed the provisions of section 281B of the Income Tax Act, 1961. The said section also provides for a provisional attachment of the property of an assessee pending the adjudication assessment/reassessment proceedings where the Income tax department believes that such attachment is necessary to protect the interest of the revenue.

Section 281 of the Income Tax Act, 1961 provides that-

  • Where, during the pendency of any proceeding for the assessment of any income or for the assessment or reassessment of any income which has escaped assessment, the Assessing Officer is of the opinion that for the purpose of protecting the interests of the revenue it is necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or  Principal Commissioner or Commissioner, Principal Director General or Director General or Principal Director or Director, by order in writing, attach provisionally any property belonging to the assessee in the manner provided in the Second Schedule.
  • Every such provisional attachment shall cease to have effect after the expiry of a period of 6 months from the date of the order.
  • However the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, Principal Director General or Director General or Principal Director or Director may, for reasons to be recorded in writing, extend the aforesaid period by such further period or periods as he thinks fit, so, however, that the total period of extension shall not in any case exceed two years or sixty days after the date of order of assessment or reassessment, whichever is later.
  • Where the assessee furnishes a guarantee from a scheduled bank for an amount not less than the fair market value of the property provisionally attached, the Assessing Officer shall, by an order in writing, revoke such attachment.
  • However where the Assessing Officer is satisfied that a guarantee from a scheduled bank for an amount lower than the fair market value of the property is sufficient to protect the interests of the revenue, he may accept such guarantee and revoke the attachment.
  • The Assessing Officer may, for the purposes of determining the value of the property provisionally attached, make a reference to the Valuation Officer referred to in section 142A, who shall estimate the fair market value of the property in the manner provided under that section and submit a report of the estimate to the Assessing Officer within a period of 30 days from the date of receipt of such reference.
  • An order revoking the provisional attachment shall be made-
  • within 45 days from the date of receipt of the guarantee, where a reference to the Valuation Officer has been made; or
  • within 15 days from the date of receipt of guarantee in any other case.
  • Where a notice of demand specifying a sum payable is served upon the assessee and the assessee fails to pay that sum within the time specified in the notice of demand, the Assessing Officer may invoke the guarantee, wholly or in part, to recover the amount.
  • The Assessing Officer shall, in the interests of the revenue, invoke the bank guarantee, if the assessee fails to renew the guarantee, or fails to furnish a new guarantee from a scheduled bank for an equal amount, 15 days before the expiry of the guarantee.
  • The amount realized by invoking the guarantee shall be adjusted against the existing demand which is payable by the assessee and the balance amount, if any, shall be deposited in the Personal Deposit Account of the Principal Commissioner or Commissioner in the branch of the Reserve Bank of India or the State Bank of India or of its subsidiaries or any bank as may be appointed by the Reserve Bank of India as its agent under the provisions of sub-section (1) of section 45 of the Reserve Bank of India Act, 1934 at the place where the office of the Principal Commissioner or Commissioner is situate.
  • Where the Assessing Officer is satisfied that the guarantee is not required any more to protect the interests of the revenue, he shall release that guarantee forthwith.

The High Court also relied on ‘Halbury’s Laws of India (Direct Tax – II, Vol. 32) 2nd Edition, Halsbury’s Laws of India (Direct Tax – II, Vol. 32) 2nd edition, 7. Miscellaneous, which says that section 281B relating to making an attachment before judgment is legal if assessing authority is of opinion that it is necessary to protect the interests of revenue and the same is supported by supervening factor. It gives guidelines for making provisional attachment. The power, conferred upon the Assessing Officer is a very drastic far reaching power and that power has to be used sparingly and only on substantive weighty grounds and reasons. To ensure that this power is not misused, a number of safeguards have been provided in this section. This power should be exercised by the Assessing officer only if there is a reasonable apprehension that the assessee may default the ultimate collection of the demand that is likely to be raised on completion of the assessment.  It should, therefore, be exercised with extreme care and caution. This power is to be exercised only if there is sufficient material on record to justify satisfaction that the assessee is about to dispose of whole or any part of his property with a view to thwarting ultimate collection of demand and in order to achieve said objective, attachment should be of properties and to extent it is required to achieve this object. It should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee.

It further says that where on facts the Assessing Officer was satisfied that it was necessary to attach property of assessee in order to protect the interest of revenue and due approval was taken from concerned Commissioner who opined that it was fit case for provisional attachment, order passed under this provisions in respect of certain properties of assessee would not warrant judicial review. Since this provision provides for attachment of property of assessee only and therefore no order directing attachment of fixed deposits of assessee would be illegal. This provision does not contain requirement of hearing before passing order of provisional attachment of assessee’s bank account.

The Gujarat High Court observed that the provisions of section 281B of the Income Tax Act, 1961 gives guidelines for making the provisional attachment whereas section 83 of the Act does not contain such guidelines.

The High Court issued the following guidelines in its conclusion part of the judgment as detailed below-

  • The order of provisional attachment before the assessment order is made may be justified if the assessing authority or any other authority empowered in law is of the opinion that it is necessary to protect the interest of the revenue. However the subjective satisfaction should be based on some credible materials or information and also should be supported by supervening factor. It is not any and every material, howsoever vague and indefinite or distant remote or far fetching, which would warrant the formation of the belief.
  • The power conferred upon the authority under section 83 of the Act for provisional attachment could be termed as a very drastic and far-reaching power. Such power should be used sparingly and only on substantive weighty grounds and reasons.
  • The power of provisional attachment under section 83 should be exercised by the Authority only if there is reasonable apprehension that the assessee may default the ultimate collection of the demand that is likely to be raised on completion of the assessment. It should, therefore, be exercised with extreme care and caution.
  • The power under section 83 of the Act for provisional attachment should be exercised only if there is sufficient material on record to justify the satisfaction that the assessee is about to dispose of wholly or any part of his/her property with a view to thwarting the ultimate collection of demand and in order to achieve the said objective, the attachment should be of the properties and to that extent, it is required to achieve this objective.
  • The power under section 82 should neither be used as a tool to harass the assessee nor should it be used in a manner which has an irreversible detrimental effect on the business of the assessee.
  • The attachment of bank account and trading account should be resorted to only as a last resort of measure. The provisional attachment should not be equated with the attachment in the course of recovery proceedings.
  • The authority before exercising power under section 83 for provisional attachment should take into consideration two things-
  • whether it is a revenue neutral situation;
  • the statement of ‘output liability or input credit.

having regard to the amount paid by reserving the input tax credit if the interest of the revenue is sufficiently secured, then the authority may not be justified in invoking its power under section 83 for the purpose of provisional attachment.

 

By: Mr.M. GOVINDARAJAN - December 6, 2019

 

 

 
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