2024 (8) TMI 1540 - HC - GST

Provisional attachment of petitioner s bank Account - wrongful availment of ITC - impugned order has been passed without the respondents initiating any other proceedings - summons u/s 70 of the CGST Act issued but the same was posted after the impugned order was passed - violation of principles of natural justice - HELD THAT - The fact that the summons u/s 70 of the CGST Act was posted immediately after the date of the impugned order does not mean that the proceedings were not commenced prior to transmission of the summons. The summons is dated 20.05.2024 and thus was issued prior to the impugned order. A plain reading of Section 83(1) of the CGST Act indicates that an order of provisional attachment can be passed where proceedings have commenced under Chapter XII Chapter XIV or Chapter XV of the CGST Act. Chapter XIV of the CGST Act includes Section 67 to Section 72 of the CGST Act. It is apparent that the summons has been issued under Section 70 of the CGST Act - which falls under Chapter XIV of the CGST Act prior to passing the impugned order - There is no cavil with the proposition that before making an order under Section 83(1) of the CGST Act the Commissioner must necessarily form an opinion that such an order is necessary to protect the interest of the Government revenue. Further the said opinion must be based on tangible material. In the present case the impugned order records that the investigation has revealed that the petitioner had made suspicious and fraudulent payments to certain bank accounts and wrongfully availed and passed Input Tax Credit (hereafter ITC) to the extent of Rs.87, 54, 083/ -. The Show Cause Notice dated 20.06.2024 sets out in detail the allegations regarding wrongful availment of the ITC. It is alleged that the petitioner had availed of the ITC from two suppliers namely M/s Brighton Sales Inc. M/s Caretech System. According to the department the said suppliers were found to be non-existent. The petitioner allegedly availed of the ITC amount to Rs.87, 54, 083/- during the relevant period from the said suppliers. The petitioner thus has the knowledge of the allegations that he was required to meet - There are no ground to interfere with the impugned order attaching the petitioner s bank account. The petitioner has also challenged the issuance of the Show Cause Notice dated 20.06.2024 under Section 74 of the CGST Act on the ground that he had received the intimation dated 05.06.2024 only one day prior to the Show Cause Notice and had replied to the same. However the same was not considered. Conclusion - Validity of the provisional attachment under Section 83 of the CGST Act upheld. List on 22.10.2024.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

1. 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 executed.

2. Whether the Commissioner complied with the necessary conditions under Section 83(1) of the CGST Act, including forming an opinion based on tangible material that the attachment was necessary to protect government revenue.

3. Whether the petitioner was entitled to be provided with the reasons for the provisional attachment without requesting them.

4. The validity of the Show Cause Notice issued under Section 74 of the CGST Act, especially in light of the petitioner's contention that prior intimation was not adequately considered.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Provisional Attachment under Section 83 of the CGST Act

- Relevant Legal Framework and Precedents: Section 83 of the CGST Act allows for provisional attachment of property to protect government revenue after the initiation of proceedings under specified chapters of the Act. The Supreme Court in Radha Krishan Industries v. State of Himachal Pradesh emphasized that such power is draconian and must be exercised with strict adherence to statutory conditions.

- Court's Interpretation and Reasoning: The Court determined that proceedings had indeed commenced under Chapter XIV of the CGST Act, as the summons under Section 70 was issued prior to the impugned order. The Court found no merit in the argument that the attachment was invalid due to the timing of the summons.

- Key Evidence and Findings: The investigation revealed suspicious and fraudulent payments by the petitioner and wrongful availment of Input Tax Credit (ITC) from non-existent suppliers, justifying the attachment.

- Application of Law to Facts: The Court applied Section 83, noting that the Commissioner had the authority to attach the bank account based on the investigation's findings and the need to protect revenue.

- Treatment of Competing Arguments: The petitioner's arguments regarding the lack of proceedings initiation and absence of reasons in the impugned order were dismissed, as the Court found that the statutory requirements were met.

- Conclusions: The provisional attachment was upheld as valid, with the Court finding no grounds to interfere with the Commissioner's decision.

2. Compliance with Conditions under Section 83(1)

- Relevant Legal Framework and Precedents: Section 83(1) requires the Commissioner to form an opinion based on tangible material that attachment is necessary to protect revenue. The Supreme Court's decision in Radha Krishan Industries outlines the necessity of this opinion being based on tangible material.

- Court's Interpretation and Reasoning: The Court noted that while the Commissioner's opinion must be based on tangible material, there is no requirement to include this material in the order itself. The Court found that the investigation provided sufficient basis for the Commissioner's opinion.

- Key Evidence and Findings: The investigation's findings of fraudulent ITC claims and non-existent suppliers were deemed sufficient tangible material.

- Application of Law to Facts: The Court found that the Commissioner's opinion was duly formed based on the investigation, satisfying the requirements of Section 83(1).

- Treatment of Competing Arguments: The petitioner's argument that the reasons must be communicated without request was rejected, as the Court held that the reasons need not be disclosed unless requested by the taxpayer.

- Conclusions: The Court concluded that the conditions under Section 83(1) were met, and the attachment was justified.

3. Provision of Reasons for Provisional Attachment

- Relevant Legal Framework and Precedents: The requirement for the Commissioner to record reasons for attachment is established, but there is no statutory mandate to communicate these reasons without a request.

- Court's Interpretation and Reasoning: The Court held that while the Commissioner must record reasons, these need not be communicated to the taxpayer unless requested.

- Key Evidence and Findings: The impugned order referenced the investigation's findings, which were sufficient for the Commissioner's decision.

- Application of Law to Facts: The Court found that the petitioner's knowledge of the allegations and investigation sufficed for understanding the attachment's basis.

- Treatment of Competing Arguments: The petitioner's contention that reasons should be automatically provided was dismissed.

- Conclusions: The Court concluded that the lack of automatic communication of reasons did not invalidate the attachment.

4. Validity of the Show Cause Notice under Section 74

- Relevant Legal Framework and Precedents: Section 74 of the CGST Act pertains to the issuance of Show Cause Notices for tax demands and penalties.

- Court's Interpretation and Reasoning: The Court limited the notice to the challenge of the Show Cause Notice, allowing further proceedings to address the petitioner's concerns about prior intimation.

- Key Evidence and Findings: The petitioner alleged inadequate consideration of prior intimation, which the Court acknowledged as a separate issue.

- Application of Law to Facts: The Court allowed the petitioner to pursue this issue separately, indicating procedural fairness concerns.

- Treatment of Competing Arguments: The Court did not delve deeply into this issue, instead allowing further proceedings.

- Conclusions: The Court deferred a final decision on the Show Cause Notice's validity, scheduling further proceedings.

SIGNIFICANT HOLDINGS

- The Court upheld the validity of the provisional attachment under Section 83 of the CGST Act, emphasizing the necessity of the Commissioner's opinion being based on tangible material, as supported by the Supreme Court's precedent in Radha Krishan Industries.

- The Court clarified that while the Commissioner must record reasons for the attachment, these need not be communicated to the taxpayer unless requested.

- The Court allowed further proceedings to address the petitioner's challenge to the Show Cause Notice under Section 74, indicating procedural fairness concerns.