PROVISIONAL ATTACHMENT UNDER GST LAWS – WHETHER BENEFICIAL TO THE DEPARTMENT?

Provisional attachment

Section 83 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) gives powers to the Commissioner to attach the properties of the tax payer provisionally. Section 83(1) of the Act provides that where, after the initiation of any proceeding under-

• Chapter XII, - Assessment;
• Chapter XIV – Inspection, search, seizure and arrest; or
• Chapter XV – Demands and recovery.

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.

Section 122(1A) of the Act provides that any person who retains the benefit of a transaction covered under clauses-

Sub clause (i) - supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply;

Sub-clause (ii) - issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made thereunder;

Sub- clause (vii) - takes or utilises input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made thereunder; or

Sub-clause (ix) - takes or distributes input tax credit in contravention of section 20, or the rules made thereunder,

and at whose instance such transaction is conducted, shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on.

Object

The object of provisional attachment is primarily intended to protect the interests of the Government revenue.

Benefits

The following are the benefits accrued to the Department-

• The provisional attachment prevents the taxpayer from selling, transferring or disposing of assets during the pendency of proceedings.
• It ensures that assets available if tax, interest, or penalty is ultimately confirmed.
• If the taxpayer dissipates assets before adjudicating is completed, the recovery of tax may become impossible.
• It reduces the risk of the Department.
• It discourages the taxpayers from evading payment of tax by alienating the property.
• Once the liability is confirmed the department has a better change of recovering the dues from the attached assets, subject to the provisions of GST law.

Relief from High Courts

When the provisional attachment is made, the taxpayer used to approach High Court and file writ petition against the Department with the prayer to quash the provisional attachment. Multiple writ petitions have been filed with various High Courts.

The High Courts, while dealing with such writ petition, usually consider the following before passing order-

• Whether proceedings covered by Section 83 were actually pending?
• Whether the Commissioner formed an independent opinion that attachment was necessary to protect the interest of Government revenue.

If either condition is absent, the attachment is liable to be quashed.

The High Court will ascertain from the facts of the case as to whether the Commissioner must have tangible material indicating that the taxpayer may:

• dispose of assets,
• transfer of property, or
• frustrate recovery.

A mere suspicion or routine apprehension is insufficient.

In the provisional attachment order the Commissioner has to record reasons for attachment. If no reasons are recorded the High Court may call for the records to verify that the Commissioner's satisfaction was based on relevant material rather than mechanical approval. The High Court is further to consider the amount of the tax liability, value of the attached property and whether the attachment of property is excessive than the actual demand. The High Court is to further consider by attaching the properties of the tax payer provisionally the business of the tax payer shall not vehemently be affected.

The High Court, if it finds that the provisional attachment is unlawful or excess may order-

• to quash the provisional attachment order;
• to direct release of the attached bank account or property;
• to permit operation of the bank account subject to conditions;
• to substitute the attachment with adequate security or a bank guarantee; or
• to direct the Commissioner to reconsider the matter in accordance with law.

The provisional attachment of the properties of the tax payer is a drastic one. The same shall be used sparingly. The High courts can exercise judicial review if the power is exercised arbitrarily, without jurisdiction, or disproportionately.

Provisional attachment – mode of recovery?

Section 83 merely authorizes the provisional attachment of property, including bank accounts, to protect the interest of Government revenue. It does not authorize the department to appropriate or recover the amount lying in an attached bank account before the tax liability is determined and becomes recoverable under the Act. Actual recovery can be done only under Section 79 of the Act. The recovery of that amount must follow the statutory recovery process once the liability becomes recoverable.

Conclusion

Therefore, provisional attachment secures the assets but does not itself result in lawful recovery of the amount. The department has appropriated money directly from a provisionally attached bank account before the demand became recoverable, that action may be open to challenge, depending on the facts and the stage of the proceedings.