2018 (4) TMI 1292 - HC - GST

Court Orders Return of Coerced Cheques, Quashes 2nd Notice, Lifts Account Freeze

The Court directed the return of collected cheques obtained under coercion, quashed the second show-cause notice for lack of jurisdiction, and removed the ... Validity of collecting post-dated cheques during raids - Provisional attachment to protect government revenue - Scope of powers under subsection (3) of section 74 vis-a -vis subsection (1) - Exercise of drastic revenue powers requires strong prima facie caseValidity of collecting post-dated cheques during raids - Lawfulness of the departmental authorities collecting three cheques from the petitioners on 20.02.2018 - HELD THAT: - The Court held that coercive collection of post-dated cheques during a raid, absent a crystallized or confirmed tax demand, is not an acceptable means of revenue collection. Prior decisions of this Court and other High Courts were cited to show that such practice is impermissible unless the assessee voluntarily offers cheques to avoid harsher provisional measures. No justification existed in the present case for collection or voluntary surrender of the cheques; accordingly the department was directed to return them. [Paras 7, 8]The three cheques collected on 20.02.2018 are to be returned to the petitioners.Scope of powers under subsection (3) of section 74 vis-a -vis subsection (1) - Protection against exercise of drastic revenue powers without prima facie justification - Validity of the second show-cause notice dated 19.03.2018 issued under section 74(3) for the same period as an earlier notice under section 74(1) - HELD THAT: - Section 74(1) empowers issuance of a notice where tax is unpaid by reason of fraud, willful misstatement or suppression; section 74(3) permits serving a statement for periods other than those covered under subsection (1) where a notice under subsection (1) has been issued. The Court observed that subsection (3) cannot be used to expand or reissue liability for the same period already covered by a subsection (1) notice; subsections (1) and (3) are meant to cover separate periods. The second notice related to the same period (July 2017 to 20.02.2018) and therefore was beyond the scope of section 74(3) and was quashed. The department remains free to consider jurisdictional objections and to pursue legally permissible routes for raising demand for the same period. [Paras 9, 11, 12]The show-cause notice dated 19.03.2018 is set aside (quashed) insofar as it purports to be issued under section 74(3) for the same period already covered by the earlier notice.Provisional attachment to protect government revenue - Exercise of drastic revenue powers requires strong prima facie case - Validity of provisional attachment of the petitioners' two bank accounts effected by the department on 27.02.2018 - HELD THAT: - Under the statute provisional attachment during pendency of specified proceedings is an extraordinary power to protect revenue and must be exercised only where the authority has a strong prima facie case showing likelihood of a recoverable liability and necessity to protect revenue. The Court found no material in the attachment orders or affidavits to justify exercise of the drastic power in this case, particularly given contested classification issues and pending adjudication. Consequently, the provisional attachments were set aside, subject to protective conditions imposed by the Court to secure revenue pending final adjudication. [Paras 13, 15, 16, 17]The provisional attachment of the two bank accounts is removed, subject to conditions that the petitioners maintain minimum stock and file an undertaking by the date specified.Final Conclusion: The petition is disposed: the departmental collection of cheques is ordered returned; the second show-cause notice dated 19.03.2018 (issued under section 74(3) for the same period) is quashed; provisional attachment of the petitioners' bank accounts is vacated subject to specified security and undertaking, and the petitioners' defences to the surviving show-cause notice of 27.02.2018 remain open. Issues Involved:1. Collection of cheques under coercion.2. Issuance of a second show-cause notice.3. Provisional attachment of bank accounts.Detailed Analysis:1. Collection of Cheques Under Coercion:The petitioners contended that the departmental authorities collected three cheques amounting to Rs. 19,74,886/- under threat and coercion during a raid on 20.02.2018, before their tax liability was ascertained. The Court held that the practice of collecting post-dated cheques under coercion is impermissible, referencing the case of Atul Motors Pvt. Ltd v. State of Gujarat. The Court directed the department to return the collected cheques, noting that there was no justification for the departmental authorities to forcibly collect them.2. Issuance of a Second Show-Cause Notice:The petitioners challenged the second show-cause notice dated 19.03.2018, which demanded Rs. 1,29,13,928/- for the period between July 2017 and 20.02.2018, on the grounds of lack of jurisdiction. The Court noted that the first show-cause notice dated 27.02.2018 already covered the same period and demanded Rs. 36,88,706/-. The Court clarified that under Section 74(3) of the CGST Act, a second notice cannot be issued for the same period covered under Section 74(1). The powers under Section 74(3) are intended for periods other than those covered under Section 74(1). Consequently, the second show-cause notice was quashed.3. Provisional Attachment of Bank Accounts:The petitioners also challenged the provisional attachment of their bank accounts by the department. The Court examined Section 83 of the CGST Act, which allows for provisional attachment to protect government revenue during the pendency of proceedings. The Court referenced the case of Automark Industries (I) Ltd v. State of Gujarat, emphasizing that provisional attachment is a drastic measure and must be exercised with due care and only in appropriate cases. The Court found that the department did not demonstrate why such drastic action was necessary and set aside the attachments. However, to ensure the department could recover any confirmed tax liability, the Court imposed conditions: the petitioners must maintain a stock worth a minimum of Rs. 50 lacs and file an undertaking to this effect.Conclusion:The Court directed the return of the cheques, quashed the second show-cause notice, and removed the provisional attachment of bank accounts, subject to conditions ensuring the protection of government revenue. The petitioners' defenses against the show-cause notice dated 27.02.2018 were kept open.