September 18, 2024

By Vijay Kumar

SECTION 83(1) of the GST Act reads as:

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 (1-A) of section 122, in such manner as may be prescribed.

Thus, if the Commissioner is of the opinion that property has to be attached, he has to by order in writing, attach the property provisionally.

Should this order mention why or how the Commissioner is of the opinion?

See this case: 2024-TIOL-1527-HC-MUM-GST

Petitioner before the High Court questioned the orders dated 24.07.2024 whereby in exercise of powers under Section 83 of the Central Goods and Services Tax Act, orders of provisional attachment have been passed by the respondent Commissioner. The petitioner submitted that the impugned orders are infirm inasmuch as it does not reflect the opinion of the Commissioner, that for the purpose of protecting interest of the Government revenue it is necessary to do so.

The High Court asked the counsel for the respondent Revenue, to point out the reasons for forming such an opinion, as the impugned order does not reflect any reasons for recording such opinion. The counsel for the respondents produced before the Court the copy of the original file and drew the Court's attention to note No.5, which according to him would be the document indicating reasons for the Commissioner forming such opinion.

The High Court observed,

Though we are not legally entitled to appreciate the note, as the opinion has to be reflected from order itself, however, in order to satisfy ourselves, we took a look at the note and we find that even that does not contain any reason for forming an opinion by the Commissioner that for the purpose of protecting the interest of the Government revenue, it is necessary to issue an order of provisional attachment of the properties of the petitioner.

The High Court held:

1. The language of Section 83(1) of the Central Goods and Services Tax Act, 2017, in our considered opinion, is mandatorily to be followed as it visits the petitioner with penal consequences.

2. It was, therefore, necessary that the impugned order under Section 83(1) of the Central Goods and Services Tax Act, 2017, indicate the reasons which weighed with the Commissioner to form an opinion, and order of provisional attachment was necessary.

3. The mandate of Section 83(1) enjoins upon the Commissioner to pass an order in writing in that regard, the very purpose of which is to embody the reasons for forming such an opinion, which then can be tested in a challenge raised thereto.

4. However, in absence of any reason for forming such an opinion, in our considered opinion, the impugned orders cannot be sustained.

5. The same are accordingly hereby quashed and set aside and the matter is remitted back to the Commissioner to record reasons in writing for forming such an opinion in case he deems it fit and proper again to do so.

Is the Commissioner required to state the reasons to form an opinion, and order of provisional attachment?

CBIC in its guidelines in 20/16/05/2021-GST/359 dated 23 02 2021, stated,

It is reiterated that the power of provisional attachment must not be exercised in a routine/mechanical manner and careful examination of all the facts of the case is important to determine whether the case(s) is fit for exercising power under section 83. The collective evidence, based on the proceedings/enquiry conducted in the case, must indicate that prima-facie a case has been made out against the taxpayer, before going ahead with any provisional attachment. The remedy of attachment being, by its very nature, extraordinary, has to be resorted to with utmost circumspection and with maximum care and caution.

So, CBIC did not want provisional attachment to be a routine casual affair - just for the heck of it.

But should the order mention the reasons for the Commissioner to arrive at his decision to provisionally attach property? In the same guidelines, the Board stated,

In case, the Commissioner forms an opinion to attach any property, including bank account, of the taxable person in terms of section 83, he should duly record on file the basis, on which he has formed such an opinion.

Thus, the Commissioner, in our case would have been perfectly justified in not informing the taxpayer as to why his property is being attached because the Board told him - "record the reasons on file". Maybe such top-secret matters should not be shared with unscrupulous elements like taxpayers.

But the High Court said,

The mandate of Section 83(1) enjoins upon the Commissioner to pass an order in writing in that regard, the very purpose of which is to embody the reasons for forming such an opinion, which then can be tested in a challenge raised thereto.

That's the point. If a Commissioner says, "I have an opinion that your property has to be attached, and I am not obliged to tell you why", how is the taxpayer to challenge this order? Given a choice, the law should be that Commissioner's orders are final and nobody should be allowed to challenge them, but unfortunately that is not how the law works in India. We still have courts, which are considered above the Commissioners.

Interestingly, there is a prescribed form GST DRC-22 to order provisional attachment under Section 83, which mentions,

In order to protect the interests of revenue and in exercise of the powers conferred under section 83 of the Act, I ------------------------------------(name), ------------------------------ (designation), hereby provisionally attach the aforesaid account /property.

But why? Yours is not to question.

Remember, this is provisional attachment and all that is required is initiation of proceedings, a Commissioner's opinion and a property including bank account.

You find somebody guilty and hang him - perfect, but do you throttle him just because you have a feeling that he is a criminal? Are you not killing the goose because you cannot wait till morning when it may lay an egg, that too a golden one?

The Gujarat High Court in Valerius Industries Vs Union of India - 2019-TIOL-2094-HC-AHM-GST observed,

1. The power conferred upon the authority under Section 83 of the Act for provisional attachment 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.

2. The 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.

3. The 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.

4. The attachment of bank account and trading assets should be resorted to only as a last resort or measure.

Provisional Attachment only when it is necessary, not just because it is expedient

The Supreme Court delivered a significant judgement in relation to provisional attachments under GST - 2021-TIOL-179-SC-GST. The judgement is amazing for the depth of knowledge of the Court in GST laws and procedures.

Some quotes from the judgement:

- The power to levy a provisional attachment is draconian in nature.

- The statute has not left the formation of opinion to an unguided subjective discretion of the Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue.

- By utilizing the expression "it is necessary so to do" the legislature has evinced an intent that an attachment is authorized not merely because it is expedient to do so (or profitable or practicable for the revenue to do so) but because it is necessary to do so in order to protect interest of the government revenue.

- 'Necessity' postulates a more stringent requirement than a mere expediency.

- An anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute and the rules.

- The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power.

- The Commissioner must be alive to the fact that such provisions are not intended to authorize Commissioners to make pre-emptive strikes on the property of the assessee, merely because property is available for being attached.

If the Supreme Court of the Country says that a law is draconian, it deserves all attention of the legislature which passes these laws and the bureaucrats who draft them.

One of the first principles that an investigator or an adjudicator should learn is that suspicion, however strong, cannot take the place of proof.

In Sidhivinayak Chemtech Private Limited - 2023-TIOL-601-HC-DEL-GST the High Court held,

It is necessary to bear in mind that attachment of a bank account would in effect result in the closure of the business of a taxpayer and has the propensity to cause irretrievable harm. The said drastic action is impermissible merely on the basis of suspicion and without any tangible material.

GST officers should keep in mind the sagacious words of the Supreme Court,

The Commissioner must be alive to the fact that such provisions are not intended to authorize Commissioners to make pre-emptive strikes on the property of the assessee, merely because property is available for being attached.

In the grand circus of tax law, the provisional attachment is that acrobat who swings in with flair, flipping over taxpayer's assets with a grin. While we all love a good spectacle, let's not forget that a safety net is crucial!

Until next week