Power of Commissioner for provisional attachment under GST
In the recent past, it has been seen that the GST authorities are inappropriately misusing the provisions of Section 83 of CGST Act, 2017 for provisionally attaching the properties and bank account of the taxable person without fulfilling the conditions prescribed under the statute for the valid exercise of power.
In the latest judgment of the Hon’ble Supreme Court of India in the case of M/S Radha Krishan Industries versus the State of Himachal Pradesh (Civil Appeal No 1155 of 2021 dated 20th April 2021) dismiss the ruling of the Hon’ble Himachal Pradesh High Court (“HP High Court”) and the orders of provisional attachment passed by the Joint Commissioner. SC held that 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 CBIC has issued guidelines vide its Instruction No. CBEC-20/16/05/2021-GST/359, dated February 23, 2021, for provisional attachment of property/bank accounts under Section 83 of the Central Goods and Services Tax Act, 2017 (“CGST Act”) on the modalities of implementation of provisions by the authorities.
Grounds for provisional attachment of property
Section 83 of the Act is reproduced hereunder:
“83. Provisional attachment to protect revenue in certain cases:-
(1) Where during the pendency of any proceedings under section 63 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).”
Perusal of the above provision of the law suggests that the followings grounds must exist for resorting to provisional attachment of property under the provisions of section 83 of the Act:
(i) There must be pendency of a proceeding against a taxable person under the sections mentioned in section 83 of the Act.
(ii) The Commissioner must have formed the opinion that provisional attachment of the property belonging to the taxable person is necessary for the purpose of protecting the interest of the Government revenue.
For forming an opinion under section 83, 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 the offense, 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.
The basis, on which, Commissioner has formed such an opinion, should be duly recorded on file.
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/inquiry 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.
Procedure for provisional attachment of property
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. He should, thereafter, pass an order in FORM GST DRC-22 with proper Document Identification Number (DIN) mentioning therein the details of the property being attached.
A copy of the order of attachment should be sent to the concerned Revenue Authority or Transport Authority or Bank or the relevant Authority to place an encumbrance on the said movable or immovable property. The property, thus attached, shall be removed only on the written instructions from the Commissioner.
A copy of such attachment order shall be provided to the said taxable person as early as possible so that objections, if any, to the said attachment can be made by the taxable person within the time period prescribed under rule 159 of the CGST Rules. If such objection is filed by the taxable person, Commissioner should provide an opportunity of being heard to the person filing the objection. After considering the facts presented by the person in his written objection as well as during the personal hearing, if any, the Commissioner should form a reasoned view whether the property is still required to be continued to be attached or not, and pass an order in writing to this effect. In case, the Commissioner is satisfied that the property was or is no longer liable for attachment, he may release such property by issuing an order in FORM GST DRC- 23.
Even in cases where the objection is not filed within the time prescribed under rule 159(5) of CGST Rules, the Commissioner may take the grounds mentioned in the said objection/representation on record and pass a reasoned order. Where the Commissioner is satisfied that the property was or is no longer liable for attachment, he may release such property by issuing an order in FORM GST DRC-23.
Each such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order of attachment.
If the provisionally attached property is of perishable/hazardous nature, then such property shall be released to the taxable person by issuing an order in FORM GST DRC-23, after the taxable person pays an amount equivalent to the market price of such property or the amount that is or may become payable by the taxable person, whichever is lower, and submits proof of payment. In case the taxable person fails to pay the said amount, then the said property of perishable/hazardous nature may be disposed of and the amount recovered from such disposal of property shall be adjustable against the tax, interest, penalty, fee, or any other amount payable by the taxable person. Further, the sale proceeds thus obtained must be deposited in the nearest Government Treasury or branch of any nationalized bank in fixed deposit and the receipt thereof must be retained for the record, so that the same can be adjusted against the amount determined to be recoverable from the said taxable person.
Cases fit for provisional attachment of property
As mentioned above, the remedy of attachment being, by its very nature, extraordinary, needs to be resorted to with utmost circumspection and with maximum care and caution. It normally should not be invoked in cases of technical nature and should be resorted to mainly in cases where there is an evasion of tax or where the wrongful input tax credit is availed or utilized or wrongfully passed on. While the specific facts of the case need to be examined in detail before forming an opinion in the matter, the following are some of the type of cases, where the provisional attachment can be considered to be resorted to subject to specific facts of the case:
Where the taxable person has:
- supplied any goods or services or both without the issue of any invoice, in violation of the provisions of the Act or the rules made thereunder, with an intention to evade tax; or
- issued any invoice or bill without supply of goods or services or both in violation of the provisions of the Act, or the rules made thereunder; or
- availed input tax credit using the invoice or bill referred to in clause (b) or fraudulently availed input tax credit without any invoice or bill; or
- collected any amount as tax but has failed to pay the same to the Government beyond a period of three months from the date on which such payment becomes due; or
- fraudulently obtained refund; or
- passed on input tax credit fraudulently to the recipients but has not paid the commensurate tax
The above list is illustrative only and not exhaustive. The Commissioner, may examine the specific facts of the case and take a reasoned view in the matter.
Types of property that can be attached
It should be ensured that the value of property attached provisionally is not excessive. The provisional attachment of property shall be to the extent it is required to protect the interest of revenue, that is to say, the value of the attached property should be as near as possible to the estimated amount of pending revenue against such person.
More than one property may be attached in case the value of one property is not sufficient to cover the estimated amount of pending revenue against such person. Further, different properties of the taxpayer can be attached at different points of time subject to the conditions specified in section 83 of the Act.
It may be noted that the provisional attachment can be made only of the property belonging to the taxable person, against whom the proceedings mentioned under section 83 of the Act are pending.
Movable property should normally be attached only if the immovable property, available for attachment, is not sufficient to protect the interests of revenue.
As far as possible, it should also be ensured that such attachment does not hamper the normal business activities of the taxable person. This would mean that raw materials and inputs required for the production of finished goods should not normally be attached by the Department.
In cases where the movable property, including bank account, belonging to taxable person has been attached, such movable property may be released if taxable person offers, in lieu of movable property, any other immovable property which is sufficient to protect the interest of revenue. Such immovable property should be of value not less than the tax amount in dispute. It should also be free from any subsisting charge, liens, mortgages or encumbrances, property tax fully paid up to date and not involved in any legal dispute. The taxable person must produce the original title deeds and other necessary information relating to the property, for the satisfaction of the concerned officer.
Attachment Period
Every provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the provisional attachment order.
Besides, the provisional attachment order shall also cease to have effect if an order in FORM GST DRC-23 for release of such property is made by the Commissioner.
Investigation and Adjudication
As the provisional attachment of property is resorted to protect the interests of the revenue and may also affect the working capital of the taxable person, it may be endeavored that in all such cases, the investigation and adjudication are completed at the earliest, well within the period of attachment, so that the due liability of tax as well as interest, penalty etc. arising upon adjudication can be recovered from the said taxable person and the purpose of attachment is achieved.
Share in property
Where the property to be provisionally attached consists of the share or interest of the concerned taxable person in properly belonging to him and another as co-owners, the provisional attachment shall be made by order to the concerned person prohibiting him from transferring the share or interest or charging it in any way.
Property exempt from attachment
All such property as is by the Code of Civil Procedure, 1908 (5 of 1908), exempted from attachment and sale for the execution of a Decree of a Civil Court shall be exempt from provisional attachment
It may be noted that an amendment to section 83 has been proposed in Finance Bill 2021. However, such proposed amendment shall come into effect only from a date to be notified in the future. The present guidelines, which are based on the existing provisions of section 83 of the Act, shall stand modified according to the amended provisions of section 83, once the said amendment comes into effect.
