OVERVIEW
The GST Department employs the powers granted to it under Section 83 of the Central Goods and Service Tax Act, 2017 (‘CGST Act‘) concerning the temporary attachment of the taxpayer’s property. Now, even in circumstances when such attachment is completely unjustified, voices have risen against the frequent and widespread employment of such punitive powers. The Finance Act, 2021 significantly expands the powers of temporary attachment.
In the present text, we shall discuss the meaning of attachment under the regime of Goods and Services Tax (‘GST‘), its procedural application and how various High Courts and the Supreme Court took a stance providing relief to the Assessee and the Authority.
OUTLINING ATTACHMENT
Provisional Attachment renders the attached assets immobile or frozen by depriving the debtor of his power to liquidate them.
When the Government seizes an individual’s property then the said individual is unable to transfer it to anybody else. Even if he is successful in transferring the impugned property, the transfer will be invalid and unenforceable. Even bank accounts might be linked preventing him from transferring cash to another account.
Section 83 of the CGST Act stipulates that to safeguard the Revenue’s interests, the Commissioner can issue an order for attachment of property, including the taxpayer’s bank accounts, while certain specified actions under the CGST Act are pending. If no action is taken, the order may stay in force for up to one year.
To establish an encumbrance on the mentioned property, a copy of this order may be forwarded to the competent Revenue Entity, Transport Authority, or any other Authority. This encumbrance cannot be removed until the Commissioner gives his permission.
APPLICATION OF ATTACHMENT
During the pendency of the assessment of non-filers of returns, unregistered people, and summary assessment in certain unusual instances, Section 83 of the CGST Act might be invoked. It can also be used in inspection, search, and seizure actions under Section 67 of the CGST Act. Other than that in the circumstances involving fraud or willful misrepresentation of facts, a further order for attachment of property might be issued for a claim brought under Section 73 of the CGST Act.
Apart from the aforementioned instances, there lies no mechanism for attaching the taxpayer’s property. As a result, after the processes are completed, the GST Officer can attach property under Section 79 of the CGST Act for the collection of taxes. Its power extends to all situations in which the processes have been completed and the taxpayer has been designated a defaulter.
When the Commissioner wants to temporarily attach any asset, an order is issued as per DRC-22 mentioning the asset’s specifics. DRC-22 can be issued by the Commissioner once a demand notice has been made according to Sections 63, 73, or 74 of the CGST Act. Furthermore, such attachment information must be provided only after assessment orders have been issued under Sections 62 or 64 of the CGST Act.
The GST DRC-22 also provides a clear description of a registered taxable person as well as which proceedings have been instituted against that taxable person denoting a connection between both the proceedings to be initiated against a taxable person and the Provisional Attachment of that taxable person’s bank account.
As indicated in Section 122 (1A) of the CGST Act, the Commissioner will be allowed to provisionally attach the property of a taxable person as well as any other person. Section 2 (107) of the CGST Act defines a taxable person as someone who is enrolled or is required to be registered under Sections 22 or 24 of the CGST Act. Attachments of property, including bank accounts, of the taxable person’s relatives, are not allowed provisionally under Section 83 of the CGST Act.
Furthermore, after beginning procedures under assessment, inspection, search, seizure, demands and recovery under various heads of the CGST Act, the Commissioner is suggested to attach the property provisionally.
LOCUS OF THE TAXPAYER
The taxpayer can oppose, claiming that the property in question was not subject to attachment. This objection must be lodged within 7 days of the property being attached. The Commissioner is then required to provide a chance for the taxpayer to be heard. If he is satisfied with the taxpayer’s submission, he will issue an order in DRC-23 releasing the attached property.
If the linked property is consumable or dangerous, the taxpayer must either pay the corresponding tax debts or pay the market price for the item. Following a settlement, the Commissioner will issue an order in DRC-23 releasing such property. Unless the taxpayer refuses to pay the market value of the property or pay the significant tax liability, the Commissioner may sell the property and use the earnings to cover the taxpayer’s debts.
It’s worth noting that the time restriction starts from the date of attachment, not the date of serving of the notification to the assessee. The issue here is that the GST Network does not always function as expected, and notifications cannot be read or downloaded owing to system failures. Certainly, from the perspective of the taxpayer, such delays will be a major roadblock, and demonstrating such delays to the authorities will be a difficult challenge.
JUDICIAL PRECEDENTS
The Supreme Court in Sheonath Singh v. Appellate Assistant Commissioner Of Income Tax, Calcutta [AIR 1971 SC 2451] held that the Court shall refer to the evidence to check if the assessee is honest or not but that the Court cannot check the sufficiency of the grounds for the belief. The Authority’s development of an opinion should represent a thorough examination of the evidence and a determination that it had become essential to order temporary attachment of the property.
The High Court of Punjab and Haryana in M/s Concepts Global Impex v. Union of India [CWP No. 4247 OF 2017 (O&M)] decided that until there is a special provision in the laws for the retention of the amount deposited by the taxpayer, the Revenue cannot keep any money unless there is a completed and current demand that is required to be satisfied. The person is entitled to a refund of the money he has paid to the Department.
In Valerius Industries v. Union of India & Ors. [R/SPECIAL CIVIL APPLICATION NO. 13132 of 2019] a Division Bench of the Gujarat High Court determined that an order directing the provision of a bank guarantee to a taxpayer under Section 83 of the CGST Act could not be made. A similar decision was given by the Bombay High Court in AJE India Private Limited V. Union of India [WRIT PETITION (ST.) NO.97165 OF 2020] regarding bank guarantee and provisional attachment.
The Bombay High Court Kaish Impex Private Limited v. Union of India & Ors. [6 WP 3145-2019] has observed that Section 83 read with Section 159(2) and Form GST DRC-22 establish that a procedure against a specific taxable person must be launched. A finding must be made that a Provisional Attachment order is required to protect Revenue’s interests.
The Authorities’ inability to bring a dealer’s operations to an end does not serve the revenue’s interests in any way. In M/s. Patran Steel Rolling Mill v. Assistant Commissioner of State [R/SPECIAL CIVIL APPLICATION NO. 16931 of 2018], the Gujarat High Court held that the involved Authorities should take care to protect equity and, while ensuring the Revenue’s interest, they should try to guarantee that the dealer can continue doing business.
The Gujarat High Court in Kushal Ltd v. Union of India & Ors. [R/SPECIAL CIVIL APPLICATION NO. 19533 of 2019] observed that Provisional Attachment is not permissible under Section 83 of the CGST Act unless proceedings under Section 62, 63, 64, 67 or 74 of the CGST Act.
In Vinodkumar Murlidhar Chechani v. State of Gujarat [R/SPECIAL CIVIL APPLICATION NO. 12498 of 2020], the Gujarat High Court took a hard line against the Revenue and made a statement while pronouncing the judgement in favour of the Assessee and held that:
“mechanical exercise of power under section 83 should stop at earliest. Just because some proceedings are initiated under section 67 by itself may not be sufficient to arrive at subjective satisfaction that it is necessary to provisionally attach property for purpose of protecting the interest of revenue. An order of provisional attachment cannot be a matter of course. It is one of the drastic measures which authority may be compelled to take if the situation demands for purpose of protecting the interest of revenue”.
To put simply the Gujarat High Court held that attaching bank accounts and trade assets should only be used as a last option or precaution. The attachment made according to Section 83 of the CGST Act should not be confused with the attachment made during the recovery procedures. A formal request was made by the Gujarat High Court that the Union of India and the Central Board for Direct Taxes (‘CBDT‘) would consider giving relevant instructions on the exercise of authority under Section 83 of the CGST Act.
The Supreme Court in Radha Krishnan Industries v.s State of Himachal Pradesh [Civil Appeal No 1155 of 2021] observed that interim attachment based on subjective satisfaction, without any cogent or reliable evidence, is considered malice in law, according to the High Court. The Supreme Court went on to say that the ability to impose a temporary attachment is harsh.
The Appellant argued that the order was presumed to have been issued by the Commissioner after delegation and an appeal to the GST Appellate Tribunal, which had yet to be established, was not valid. In this regard, Supreme Court held that the order issued by the Joint Commissioner as a delegate was not appealable under the law, and thus there was no alternative remedy.
The Gujarat High Court in M/s H.M. Industrial Pvt. Ltd. v. The Commissioner, CGST and Central Excise [R/SPECIAL CIVIL APPLICATION NO. 1160 of 2019] held that personal property of the Directors of a company cannot be attached and therefore, the same is unjustified. We take pleasure to share that this matter was handled by AMLEGALS before the Gujarat High Court.
AMLEGALS REMARKS
A taxable person’s property, including a bank account, maybe attached as a result of the use of the power, and as a result, a formation of opinion on tangible material is required before the power may be used. Section 83 of the CGST Act specifies that actions pending under Sections 62, 63, 64, 67, or 74 of the CGST Act are a prerequisite for exercising powers under this Section.
In the execution of temporary attachment, the Commissioner’s stance is pivotal around which the entire procedure will revolve. When the Assessee asks for explanations, the Revenue must offer them and this is usually when the lawsuit begins. Extreme powers under Section 83 of the Act should never be used arbitrarily, but only after careful consideration of all relevant considerations.
Although these provisions are implemented to combat GST fraud, we must remember that we cannot impose hardship on the whole community of legitimate taxpayers because of a few miscreants. The legislation must provide for the legitimate taxpayer’s interests to be protected.
For any query or feedback, please feel free to connect with chaitali.sadayet@amlegals.com or aditi.tiwari@amlegals.com.
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