Goods & Services Tax (GST) in IndiaUncategorizedOrder of Provisional Attachment cannot be passed based on a Mere Suspicion

The Delhi High Court in Siddhivinayak Chemtech Private Limited through its Authorized Representative v. Principal Commissioner, CGST, Meerut and Ors.,  [W.P.(C) 17547/2022 of 2022 decided on 16.05.2023], held that attachment order cannot be passed based on a mere suspicion.  

FACTS

 Siddhivinayak Chemtech Private Limited (hereinafter referred to as “the Petitioner”) is engaged in trading of  industrial chemicals related to the pesticide  industry.      The Petitioner operates at two primary locations; Haryana Uttar Pradesh and also holds Importer Exporter Code (hereinafter referred to as the “IEC”).

On 20.05.2022, the Superintendent (Anti Evasion), Central Goods & Service Tax Commissionerate,  (hereinafter referred to as the  “Respondent No.2 ”)      issued a summons under Section 70 of the Central Goods and Service Tax Act, 2017 (hereinafter referred to as the “CGST Act”)to the Directors of the Petitioner.

The Directors were instructed to appear and tender statements in connection with investigations pertaining to fraudulent use of Input Tax Credit (ITC) of Rs. 36.6 crores by M/s Best Crop Science LLP and M/s Best Crop Science Pvt. Ltd.

The Petitioner filed a reply dated 08.06.2022 against the aforesaid summons and provided the details regarding transactions during Financial Year 2021-2022.. Subsequently, numerous summons were issued by the Respondent No.2 on the same issue to different officers and directors of the Petitioner.

Pursuant to the repeated summons, the Petitioner addressed a letter to the Chief Commissioner, CGST, Meerut Zone on 06.08.2022 requesting to intervene in the investigation conducted by the Respondent No.2.

On 05.09.2022, the Petitioner realised that its bank account was provisionally attached under Section 83 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the “CGST Act”) and hence, filed an objection under Rule 159(5) of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the ”CGST Rules”) before the Principal Commissioner, CGST, Meerut (hereinafter referred to as the “Respondent No.1”).

The Petitioner filed a Petition vide Siddhivinayak Chemtech Private Limited v. Principal Commissioner, CGST, Meerut & Ors [W.P. (C) No.16084/2022] before the Delhi High Court, which was disposed on 22.11.2022, directing the Respondent No.1 to decide the objections filed by the Petitioner under Rule 159(5) of the CGST Rules after according an opportunity of being heard.

The Petitioner further filed an application in furtherance  to       aforesaid Petition, alleging wilful non-compliance of the order dated 22.11.2022. The Delhi High Court vide order dated 05.12.2022 directed the Respondent No.1 to pass reasoned order on or before 09.12.2022.

In the meantime, the Respondents carried forward the investigations against the Petitioner. Further, Respondent No.1 passed an order on 08.12.2022 confirming the attachment order (hereinafter referred to as the “Impugned Order”).

The Petitioner being aggrieved by the Impugned Order filed the present Petition.

ISSUES BEFORE THE HIGH COURT OF DELHI

1. Whether the Respondent No.1 had the territorial jurisdiction to pass the Impugned Order of bank attachment under Section 83 of CGST Act?

2. Whether the Impugned Order of provisional attachment was valid as per the provision of Section 83 of CGST Act ?

CONTENTION OF THE PARTIES

The Petitioner contended that the Respondent No.1 did not have the territorial  jurisdiction to pass the Impugned Order under Section 83 of the CGST Act. It was also contended that the Impugned Order did not reflect any valid reasons or tangible material necessary for attachment of bank account under Section 83 of the CGST Act.

The Petitioner further argued that the powers of bank attachment under Section 83 of the CGST Act can be exercised only if it was necessary to protect the interest of revenue.

The Respondents contended that the as the investigation is being conducted against the Petitioner, it was necessary to attach the bank accounts of the Petitioner for protecting the interest of revenue.

It was argued that the Petitioner was a dummy company because a director of the Petitioner was an employee of M/s. Best Crop Group.

DECISION AND FINDINGS

The Delhi High Court observed that the Respondent No.1 did not have the territorial jurisdiction to pass the Impugned Order of bank attachment under Section 83 of the CGST Act. It was further observed that the Respondent No.1 was not the “Commissioner” empowered to investigate the Petitioner.

The High Court further relied on Commissioner of Income Tax, Delhi v. Kelvinator of India Limited [(2010) 2 SCC 723], and applied test of existence of tangible materials and opined that reason to believe is a pre-condition for initiating proceedings for re-assessment and it must be based on tangible material that has a live link with the formation of such belief.

It was held that the Impugned Order of provisional attachment did not provide any reasons to believe necessary for  the protection of the interest of the revenue. Moreover, there was no nexus with any tangible material and hence, unsubstantiated suspicion cannot be considered as a ground for draconian step of provisional attachment of the bank accounts of the Petitioner.

It was further held that provisional attachment under Section 83 of the CGST Act has to be done based on relevant facts  and a reasonable opinion not based on a mere suspicion and shall be exercised only where it is necessary and with due caution. The Impugned Order was set aside and the petition was disposed.

AMLEGALS REMARKS

The Delhi High Court has held that the draconian power of provisional attachment of bank accounts under Section 83 of CGST Act shall be used with due caution and in necessary situation. It shall be based on relevant facts for protection of interest of revenue and not mere suspicion.

– Team AMLEGALS assisted by Ms. Khushi Tiwari (Intern)