2020 (10) TMI 1214 - HC - GST

Court quashes GST bank account attachment lacking justification, emphasizes credible evidence

The court held that the provisional attachment of five bank accounts under Section 83 of the GST Act, 2017 was not sustainable as it lacked proper ... Provisional attachment to protect revenue in certain cases - Requirement of credible material for formation of subjective opinion / reasonable belief - Judicial review of subjective satisfaction limited to existence of relevant material - Provisional attachment of bank accounts as a last resort and not to be used to harass assessee - Abuse of discretion / malice in law where attachment is based on non-existent or irrelevant materialProvisional attachment to protect revenue in certain cases - Requirement of credible material for formation of subjective opinion / reasonable belief - Validity of the order of provisional attachment of the five bank accounts under Section 83 of the Act. - HELD THAT: - The Court examined the Form GST DRC-22 and the record and concluded that the order of provisional attachment was the outcome of a mechanical exercise and was devoid of any reasons or material on the file to show formation of the requisite opinion. Although Section 83 contemplates a subjective opinion that attachment is necessary to protect government revenue, such opinion must be grounded on some credible material; the existence of relevant material is a precondition to formation of the opinion. The Court relied on established precedents to hold that while the sufficiency of reasons is not open to full scrutiny, the court may examine whether any material existed on which an honest and reasonable authority could have formed the opinion. In the present case no such material was disclosed or recorded, rendering the attachment unsustainable in law.The provisional attachment of the five bank accounts was quashed as it was not supported by any credible material or disclosed reasons.Provisional attachment of bank accounts as a last resort and not to be used to harass assessee - Abuse of discretion / malice in law where attachment is based on non-existent or irrelevant material - Whether the power under Section 83 may be exercised where there is no reasonable apprehension of thwarting revenue recovery and whether such power was exercised appropriately in the present case. - HELD THAT: - The Court reaffirmed that the power under Section 83 is drastic and must be exercised sparingly, only where there is a reasonable apprehension that the assessee may defeat ultimate recovery and where attachment is necessary as a last resort. Invocation of the power without substantive weighty grounds, or for collateral or irrelevant purposes, amounts to abuse of discretion or malice in law. Applying these principles, the Court found that the statutory conditions and the safeguards enumerated by earlier decisions (including consideration of revenue-neutral situations and output/input liabilities) were not met here, and the attachment could not be sustained.The attachment was set aside because the statutory prerequisites and safeguards for invoking Section 83 were not fulfilled and the power appeared to have been exercised without proper application of mind.Judicial review of subjective satisfaction limited to existence of relevant material - Whether the Court should permit the Department to take fresh action. - HELD THAT: - While quashing the impugned provisional attachment for lack of supporting material, the Court clarified that its order would not preclude the Department from taking fresh action strictly in accordance with law and the principles laid down regarding formation of opinion, availability of credible material, and use of attachment as a last resort. The Court therefore annulled the existing attachment but preserved the Department's statutory right to proceed lawfully.The attachment was removed, subject to the Department's entitlement to initiate fresh proceedings in accordance with law and the legal principles explained by the Court.Final Conclusion: Writ petition allowed. The order of provisional attachment of the five bank accounts is quashed and set aside for want of any disclosed or credible material to support formation of the requisite opinion under Section 83; the Department is, however, at liberty to proceed afresh strictly in accordance with law and the principles articulated by the Court. Issues Involved:1. Legality of the provisional attachment of bank accounts under Section 83 of the GST Act, 2017.2. Requirement of material evidence for forming an opinion under Section 83.3. Judicial scrutiny of the subjective satisfaction of the authority.4. Conditions for exercising the power of provisional attachment.5. Impact of provisional attachment on the business of the assessee.Issue-wise Detailed Analysis:1. Legality of the Provisional Attachment of Bank Accounts:The writ applicant challenged the provisional attachment of five bank accounts under Section 83 of the GST Act, 2017. The court held that the order of provisional attachment was not sustainable in law, as it was a result of a mechanical exercise of power without proper justification.2. Requirement of Material Evidence for Forming an Opinion:Section 83 requires the Commissioner to form an opinion that provisional attachment is necessary to protect the interest of government revenue. This opinion must be based on credible material. The court emphasized that the existence of relevant material is a precondition for forming such an opinion. The statutory requirement of reasonable belief is meant to safeguard citizens from vexatious proceedings.3. Judicial Scrutiny of the Subjective Satisfaction of the Authority:The court noted that while the formation of opinion under Section 83 is subjective, it must be based on credible material. The court can examine the materials to determine whether an honest and reasonable person could form such an opinion. In this case, the court found that the impugned order lacked any reason and there was no material on the original file to justify the belief formed by the authority.4. Conditions for Exercising the Power of Provisional Attachment:The court outlined that the power of provisional attachment should be used sparingly and only on substantive grounds. The authority must have a reasonable apprehension that the assessee may default on the ultimate collection of the demand. The power should be exercised with extreme care and caution, and there must be sufficient material to justify the satisfaction that the assessee is about to dispose of property to thwart the collection of demand.5. Impact of Provisional Attachment on the Business of the Assessee:The court highlighted that the power under Section 83 should not be used to harass the assessee or have an irreversible detrimental effect on the business. Attachment of bank accounts and trading assets should be a last resort. The court found that none of the conditions for exercising the power of provisional attachment were fulfilled in this case.Conclusion:The writ application was allowed, and the order of provisional attachment of the five bank accounts was quashed and set aside. The court ordered the removal of the attachment and clarified that this order would not prevent the Department from taking appropriate action afresh in accordance with the law.