POWER FOR PROVISIONAL ATTACHMENT OF BANK ACCOUNT UNDER GST PROVISIONS IS NOT ABSOLUTE

[Mr. M. GOVINDARAJAN]

Provisional attachment

Section 83 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) gives powers to the Commissioner to attach provisionally any property, including bank account.  Section 83 of the Act provides that 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.  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.

Rule 159 provides the procedure for attachment of any property, including bank account.  The following is the procedure involved in attachment of property-

• Where the Commissioner decides to attach any property, including bank 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.
• Where 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.
• Where 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.
• 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.

Power is not absolute

The power of the Commissioner in attaching any property including bank account is not absolute.  This has been discussed in various judgments of High Courts.

In ‘VALERIUS INDUSTRIES VERSUS UNION OF INDIA’ – 2019 (9) TMI 618 - GUJARAT HIGH COURT, the High Court held the following-

• The order of provisional attachment before the assessment order is made may be justified if the assessing authority or any authority empowered in law is of the opinion that it is necessarily to protect the interest of revenue.
• The subjective satisfaction should be based on some credible materials or information and also should be supported by supervening factor.
• The power under section 83 of the Act 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.
• Such power should be exercised 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 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. 
• The attachment of bank account and trading assets should be resorted to only as a last resort or measure.  The provisional attachment under section 83 should not be equated with the attachment in the course of the recovery proceedings. 
• The Authority before exercising power under section 83 of the Act for provisional assessment should take into consideration two things-

• Whether it is a revenue neutral situation;
• The statement of ‘output liability or input tax credit’.

• Having regard to the amount paid by reversing the input tax credit if the interest of the revenue is sufficiently secured, then the authority may not be justified in invoking such power for the purpose of provisional attachment.

In ‘BINDAL SMELTING PVT. LTD. THROUGH ITS DIRECTOR. VERSUS ADDITIONAL DIRECTOR GENERAL, DIRECTORATE GENERAL OF GST INTELLIGENCE  [2020 (1) TMI 569 - PUNJAB & HARYANA HIGH COURT] the petitioner is manufacturing lead ingots, red oxide and grey oxide.  The premises of the petitioner were searched on 27.03.2018 by the Revenue officials.  The officials seized some records and got different documents from the petitioner from time to time.  The petitioner failed to supply some transporter bills and weighment slips.    The Officials, during search found that the petitioner has purchased scrap batteries from different supplies which included 16 suppliers who are not traceable.  The petitioner availed input tax credit for the period from July 2017 to March 2018 to the tune of ₹ 13.38 crores on the basis of invoices of 16 supplies, who are not traceable.

The respondent vide order dated 10.07.2019 provisionally attached Over Cash Credit (‘OCC’ for short) of the petitioner.  The petitioner raised his objections vide his letter dated 23.10.2019 on the provisional attachment of his bank account which was not accepted by the respondent.  Against this the petitioner filed the present writ petition before the High Court.  The petitioner prayed for the quashing of the attachment order and also prayed that the respondent may be restrained from taking coercive steps against the petitioner and its Directors/Employees.

The petitioner submitted the following before the High Court-

• The account in question is OCC account and the petitioner till date had utilized credit limit to the tune of ₹ 6.42 crores.
• There is debit balance in the account and its attachment amounts to closure of business because the present era it is not possible to carry on the business activities without bank account.
• Section 83 of the Act and Rule 159  permit attachment to protect the interest of the revenue and not to closure the business of any entity.
• As there is debit balance there is no question of protection of the interest of the revenue.
• The petitioner is a running unit and more than 100 families are dependent upon the unit and its closure would deprive a source of livelihood to these families.
• Till date no show cause notice has been issued under section 73 or 74 of the Act.
• Any demand prior to show cause notice and its adjudication is bade and beyond the jurisdiction of the respondent.

The respondent submitted the following before the High Court-

• The petitioner is not actually purchasing  inputs from its 16 suppliers who are not traceable.
• Therefore the petitioner is liable to pay input tax credit amounting to ₹ 13.38 crore, which has been wrongly availed.
• The scrap batteries have been purchased from unorganized/unregistered persons backed with fake invoices and bogus transport details.
• The bank account has been attached only to safeguard the interest of Government revenue.
• The contention of the petitioner that attachment of bank account amounts to closure of business is untenable.
• Once the Legislature has provided for attachment of bank account, the same cannot be called to be in violation of Article 14, 19(1)(g) and 21 of Constitution of India.
• The investigation is going on and the show cause notice under section 73 or 74 would be issued after its completion.

The High Court heard the submissions put forth by both the parties.  The High Court analyzed the provisions of section 62, 63, 64, 67, 73, 74, 83 of the Act and Rule 159.  The High Court observed that the Commissioner may provisionally attach any property including bank account.  Such power is not absolute.  The attachment is subject to the following safeguards-

• Order should be passed by the Commissioner.
• Proceeding under section  62 or 63 or 64 or 67 or 73 or 74 should be pending.
• Commissioner must form an opinion.
• Order should be passed to protect the interest of revenue.
• It must necessary to attach property.

Expression ‘is of the opinion’ or ‘has reason to believe’ is of same connotation and is indicative of subjective satisfaction of Commissioner, which depends upon facts and circumstances of each case.  It is settled law that the opinion must have a rational connection with or relevant bearing on the formation of the opinion.  Rational connection postulates that there must be a direct nexus or live link between the protection of interest and available property which might not be available at the time of recovery of taxes and after final adjudication of the dispute.  The opinion must be formed in good faith and should not be a mere pretence.  The Courts are entitled to determine whether the formation of opinion is arbitrary, capricious or whimsical. 

The High Court observed that in the present case  the attached bank account is OCC and the petitioner has a debit balance of ₹ 6.42 crores, thus question arises that whether continuation of attachment would protect the interest of revenue or not.  The power of the Commissioner under section 83 should be exercised only to protect the interest of revenue and not to ruin the business of an entity.  No purpose leaving aside securing interest of revenue is going to be achieved except closure of business which cannot be permitted unless and until running of business itself is prohibited in law.  The contention of the respondent that they have power to attach bank account irrespective of the nature of account cannot be countenanced.

The High Court was of the opinion that the respondent can attach an account only if there is something balance in the account.  The power of attachment of the bank account cannot be exercised as per whims and caprices of the Authority.  In case the property is mortgaged with bank and value of property is less than outstanding dues of bank, provisional attachment is meaningless and action remains only on paper.  In the absence of record showing that the interest of revenue is protected by attaching property or bank account, action deserves to be declared as taken without application of mind and formation of opinion on the basis of cogent material.  Thus the attachment of current account having debit balance does not protect the interest of revenue, instead merely ruins the business of a dealer. 

The High Court set aside the order of Commissioner attaching the OCC bank account of the petitioner.