2020 (1) TMI 569 - HC - GST

Provisional bank account attachment under CGST Act deemed illegal, must protect revenue without harming business operations.

The Court held that the provisional attachment of the Petitioner's Over Cash Credit (OCC) bank account under Section 83 of the CGST Act was illegal as it ... Provisional attachment to protect revenue - subjective satisfaction / opinion of the Commissioner - necessity test for attachment - attachment of bank accounts as a last resort - protection of revenue vs. ruin of business - rational nexus between attachment and recovery - safeguards in provisional attachmentProvisional attachment to protect revenue - attachment of bank accounts as a last resort - necessity test for attachment - protection of revenue vs. ruin of business - Validity of provisional attachment of the petitioner's Over Cash Credit (OCC) bank account which had a debit balance. - HELD THAT: - The Court held that Section 83 confers a drastic power of provisional attachment to protect the interest of revenue but that power is circumscribed by statutory safeguards and must be exercised only when necessary and on cogent material forming a rational nexus between the attachment and protection of revenue. The expression of subjective opinion by the Commissioner must have a relevant bearing on formation of that opinion and not be arbitrary. Attachment is permissible during pendency of specified proceedings, but the authority must ensure the attachment will in fact secure revenue; attachment should be a last resort and should not be used in a manner that would irreversibly destroy the assessee's business. Drawing on analogous precedents, including decisions referred to in the judgment such as Gandhi Trading , Kaneria Granito Ltd. and Valerius Industries , the Court noted that attachment of cash credit/overdraft or OCC accounts which show a debit balance does not secure revenue because there is no realizable balance available for recovery and therefore such attachment merely cripples business without advancing the object of Section 83. Given that the petitioner was a running manufacturing unit, records had been seized or furnished, directors had appeared and no adjudication under Sections 73/74 had been completed, continuation of attachment of an OCC account with a debit balance could not be justified as necessary to protect revenue. [Paras 6, 7, 10, 12]Impugned orders attaching the petitioner's OCC bank account were quashed and set aside.Final Conclusion: The petition succeeds: provisional attachment of the OCC account (which had a debit balance) was held to be unjustified under Section 83, and the attachment orders are quashed and set aside. Issues Involved:1. Legality of the provisional attachment of the Petitioner’s Over Cash Credit (OCC) bank account under Section 83 of the CGST Act, 2017.2. Impact of the attachment on the Petitioner’s business operations.3. Compliance with procedural safeguards under Section 83 of the CGST Act and Rule 159 of the CGST Rules, 2017.4. Comparison with similar provisions under the Income Tax Act, 1961.Detailed Analysis:1. Legality of the Provisional Attachment:The Petitioner, a limited company, sought the quashing of orders dated 10.07.2019 and 12.09.2019, whereby the Respondent provisionally attached the Petitioner’s OCC bank account under Section 83 of the CGST Act, 2017. The Petitioner argued that the attachment was illegal as the account had a debit balance of Rs. 6.42 Crore, and thus, there was no question of protecting the interest of revenue. The Respondent contended that the attachment was necessary to safeguard government revenue due to the Petitioner’s alleged wrongful availing of ITC amounting to Rs. 13.38 Crore from untraceable suppliers.2. Impact on Business Operations:The Petitioner argued that the attachment of the OCC account, which had a debit balance, amounted to the closure of their business. They emphasized that the company was a running unit with over 100 families dependent on it, and the closure would deprive these families of their livelihood. The Respondent, however, maintained that the attachment was a legitimate measure to protect revenue and did not violate any constitutional rights.3. Procedural Safeguards:The Court highlighted that the power to attach property under Section 83 of the CGST Act is not absolute and must be exercised with caution. The attachment must be necessary to protect the interest of revenue, and the Commissioner must form an opinion based on rational connection and relevant bearing on the formation of the opinion. The Court noted that the attachment of a bank account with a debit balance does not serve the purpose of protecting revenue but rather ruins the business of the dealer.4. Comparison with Income Tax Act Provisions:The Court referred to similar provisions under Sections 226(3) and 281B of the Income Tax Act, 1961, and relevant case law. It was observed that the power of provisional attachment should be exercised only if there is a reasonable apprehension that the assessee may thwart the ultimate collection of the demand. The attachment should be of properties to the extent required to achieve the objective of protecting revenue and should not be used as a tool to harass the assessee. The Court emphasized that the attachment of bank accounts and trading assets should be resorted to only as a last resort.Conclusion:The Court concluded that the impugned orders dated 10.07.2019 and 12.09.2019 were contrary to the intent and purpose of Section 83 of the CGST Act, 2017. The provisional attachment of the OCC account with a debit balance did not protect the interest of revenue and instead harmed the Petitioner’s business. The Court quashed the impugned orders, emphasizing that the power of attachment under Section 83 should be exercised sparingly and only on substantive grounds, ensuring that the interest of revenue is genuinely protected without causing undue harm to the business operations of the taxable person.