Provisional Attachment – A measure to protect interest of the revenue should be used with utmost careNOV 02, 2021
Provisional Attachment – A measure to protect interest of the revenue should be used with utmost care0
Provisional Attachment - A measure introduced to protect interest of the revenue by provisionally attaching any property of a taxable person, including bank account. We begin this article with the comments given by the division bench of Justice Dhananjaya Y Chandrachud and Justice MR Shah as:
“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 power of provisional attachment is given to the GST Authorities, more specifically to the Commissioner of GST and there are numerous of cases rolling up these days involving the matter of provisional attachment in lieu of the powers conferred under Section 83 of the CGST Act, 2017. It has always been a litigative & debatable matter whether the action of the Competent Authority of provisionally attaching the bank account or any other property belonging to the taxpayer is as per the powers conferred and is justified in the circumstances.
Brief Introduction of Provisional Attachment
Before talking about the pertinent judicial pronouncements on this issue, here’s a brief of what powers are conferred under Section 83 of the CGST Act, 2017 and subject to what conditions. Section 83 of the CGST Act, 2017, as introduced w.e.f. 01 July 2017, reads as –
“(1) 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.
(2) 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 under sub-section (1).”
However, the sub-section (1) is proposed to be amended by the Finance Act, 2021 w.e.f. a date yet to be notified and after substitution, it shall read as –
“(1) Where, after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV, 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, in such manner as may be prescribed.”
Vide the aforementioned amendment, scope of provisional attachment which is currently applicable on pendency of proceedings under Section 62, 63, 64, 67, 73 or 74 is proposed to be enlarged by giving power to invoke provisional attachment after initiation of proceedings under Chapter XII (covering Sections 59 to 64), XIV (covering Sections 67 to 72) and XV (covering Sections 73 to 84).
Now coming to the provision under Section 83 that currently exists, it provides for –
- Proceedings under Section 62, 63, 64, 67, 73 or 74 must be pending in order to invoke provisional attachment of any property of the taxpayer;
- Such power must be invoked after forming an opinion that the same is done with an objective to protest interest of the revenue;
- The competent authority to invoke such power has been defined under Section 83 to be Commissioner of GST;
- Any property, including bank account, belonging to the taxpayer can be provisionally attached by the Commissioner by passing an Order in writing; and,
- The provisional attachment cannot have an effect for more than 1 year from the date of order.
Whereas Rule 159 of CGST Rules, 2019 contains procedure and inter-alia provides for mechanism for release of property in cases –
- where the property so attached is perishable or hazardous in nature (sub-rule 4); and,
- where person whose property is provisionally attached is of the opinion that such property is not liable for attachment, filing of objections thereof (sub-rule 5 & 6).
Cases wherein power of provisional attachment can generally be invoked
CBIC, recently issued Instructions/Guidelines bearing no. CBEC-20/16/05/2021 – GST/359 dated 23 February 2021 for provisional attachment of property under Section 83 wherein certain cases (illustrative) were listed by the CBIC itself where, if the situations so warrant, provisional attachment can be resorted to, like –
- Where a person supplies any good or services without issuance of an invoice, with an intent to evade tax or vice – vera;
- Where a person has availed ITC using invoice issued without supply of goods or services;
- Where a person has collected any amount as tax but failed to pay to the Government beyond 3 months;
- Where a person has fraudulently obtained refund; and,
- Passed on ITC to recipient but not paid due taxes.
What properties can be provisionally attached ?
Bank account can be attached as mentioned in the Section 83 itself. Further, CBIC vide aforementioned Instructions/Guidelines dated 23 February 2021 contains certain guidelines with respect to the type of properties which can be provisionally attached –
- More than 1 property can be provisionally attached in case 1 property is not sufficient to cover due taxes estimated to be collected from the taxpayer;
- Movable property should only be attached in case immovable property, available for attachment, is not sufficient to cover estimated dues, i.e. preference must be given to immovable property available for attachment, like, warehouse, godown, etc.;
- In case movable property (including bank account) is attached by the officers and taxpayer offers his immovable property (enough to cover estimated liability) for attachment, such movable property may be released; and,
- Raw material & Inputs required by the taxpayer for production or finished goods should not be attached by the officers. This is to ensure that provisional attachment does not hamper normal business activities of the taxpayer.
Some pertinent judicial pronouncements / resources on Provisional Attachment ?
This section discusses some of the important judgements pronounced under GST law on this topic setting precedents as to when this power can be invoked and when it must not be invoked and in what manner should this power be invoked by the concerned authority.
1. Power for ordering of provisional attachment must be supported by substantial grounds (depicting formation of a valid opinion, as required) by the Commissioner as the said power is draconian in nature and to be exercised sparingly
- 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. Before ordering a provisional attachment the Commissioner must form an opinion on the basis of tangible material that the Assessee is likely to defeat the demand, if any, and that therefore, it is necessary so to do for the purpose of protecting the interest of the government revenue.
- The expression "necessary so to do for protecting the government revenue" implicates that the interests of the government revenue cannot be protected without ordering a provisional attachment.
It was further held that 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.
Also, the Hon’ble Court laid down the points to be considered by the authority before exercising power under Section 83 and provisionally attaching any property as –
- Whether it is revenue neutral situation; and,
- the statement of "output liability or input 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 its power under Section 83 of the Act for the purpose of provisional attachment.
- That for forming an opinion, it is important that Commissioner must exercise due diligence and duly consider as well as carefully examine all the facts of the case, including the nature of offence, amount of revenue involved, established nature of business and extent of investment in capital assets and reasons to believe that the taxable person, against whom the proceedings referred in Section 83 are pending, may dispose of or remove the property, if not attached provisionally;
- Further, it was directed by CBIC that the basis on which Commissioner has formed an opinion shall be duly recorded on file; and,
- The remedy of attachment, available to Government officers, by its very nature, extraordinary, needs to be resorted to with utmost circumspection and with maximum care and caution. It should normally not be invoked in cases of technical nature.
2. Property of any joint owner or third party (who is not the part of proceedings) cannot be provisionally attached
Facts of the Case: In the present case, the Petitioner and M/s Creative Business Associates (“Respondent 1”) opened a joint escrow account; Respondent No. 1, being the first party and the Petitioner, being the second party to the account. It was agreed that out of the deposits made in the escrow account, 3% shall be transferred to Respondent No. 1 and 97% shall be transferred to Petitioner.
In the present matter, the proceedings were initiated against the Respondent 1 under Section 74 to determine the tax and other amount due from the said person. Further the escrow account as held jointly by the Petitioner and Respondent 1 was, in entirety, provisionally attached by the Competent Authority exercising the power conferred by Section 83 to protect the interest of the revenue.
Order: The Hon’ble High Court of Bombay has held that Petitioner is not the taxable person in the present case and after considering the fact that no proceedings have been initiated against the Petitioner and no inquiry has been contemplated against the Petitioner, it was directed to the Competent Authority to lift the provisional attachment in so far as Petitioner’s share in the escrow account is concerned, i.e. 97% and department is empowered to provisionally attach such bank account to the extent of only 3%, i.e. Respondent No. 1’s share.
Hon’ble Delhi High Court, in this matter, while setting aside the provisional attachment order, held that exercise of power u/s 83 to provisionally attach bank account of the Petitioner was without jurisdiction, as the petitioner is not a ‘taxable person’ as defined in GST law, instead M/s Milkfood Ltd. is the taxable person against whom proceedings u/s 67 were pending.
3. Provisional attachment not required when substantial amount of disputed tax has already been paid/reversed
4. Authority cannot attach the bank account “again” when the order for releasing the same has been passed earlier
In the matter of Patran Steel Rolling Mill v. Assistant Commissioner of State Tax cited at MANU/GJ/1173/2019, the Competent Authority has once exercised the power under sec 83 of the CGST Act by attaching the Bank account of the assessee against which the assessee had filed the Writ Petition and the Hon’ble High Court in the said matter had set aside the impugned order of the Competent Authority and directed to release the attached property of the assessee.
After that, once again the Competent Authority has attached the same bank account of the assessee by passing an identical order again which vide this interim order of Hon’ble Gujarat High Court was directed to be released.
5. Provisional attachment ceases to be effective after the expiry of one year from the date of order or from the date of attachment if order does not specify any date.
The Hon’ble High Court of Gujarat has held that the provisional attachment would cease to have effect after the expiry of a period of one year from the date of attachment and thereby directed the bank to permit the Petitioner to operate his bank account forthwith.
6. Provisional attachment order would come to an end once final order is passed concluding the pending proceedings
In the matter of Usha Industries (India) v. Deputy Commissioner cited at  128 taxmann.com 269, Hon’ble Punjab & Haryana High Court while relying upon the Apex Court’s decision in Radha Krishan Industries (supra) held that since a final Adjudicating order under Section 74(9) of the Act has been passed, the proceedings under the provisional attachment order passed comes to an end.
7. Even after attachment of bank account, assessees are allowed to operate the bank account subject to certain conditions so that business of such assessee is not paralyzed
From the case laws described supra & Instructions/Guidelines issued by the CBIC, it will not be correct to deny the fact that the power of provisional attachment is very extreme in nature and must be exercised with full caution as if these powers are used in a harsh manner, it may eventually lead to the closure of the business of the taxable person which is never the purpose of GST law. No doubt this power is necessary to protest the interest of revenue but it should be used in a rational manner and to be exercised only if utmost necessary as it will hamper the working of the business even if the taxable person has no mala-fide intention.
Further, with the changes proposed to be made in Section 83 of the CGST Act 2017 brought by the Finance Act 2021, the scope of the powers will be expanded and now it is more imperative to be exercised carefully and with caution.
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