2020 (11) TMI 111 - HC - GST

Court orders unfreezing of accounts, lifts Importer Exporter Code blockage, allows challenge to attachment

The court granted relief to the petitioner by ordering the immediate unfreezing of specific bank accounts and the withdrawal of the blockage of the ... Provisional attachment to protect revenue - provisional attachment under section 83 of the CGST Act - pendency of proceedings under sections 62, 63, 64, 67, 73 and 74 - Form GST DRC-22 and rule 159 of the CGST Rules - objection and hearing against provisional attachment - temporary nature and one year ceiling of provisional attachment - suspension or cancellation of Importer-Exporter Code under the Foreign Trade (Development and Regulation) Act, 1992 - competence of Director General of Foreign Trade to suspend/cancel IECProvisional attachment under section 83 of the CGST Act - Form GST DRC-22 and rule 159 of the CGST Rules - objection and hearing against provisional attachment - temporary nature and one year ceiling of provisional attachment - Validity and procedural requirements of provisional attachment of bank accounts under section 83 read with rule 159 and the relief as to certain frozen accounts of the petitioner and family members. - HELD THAT: - The Court restated that invocation of section 83 requires (a) pendency of proceedings under the specified sections and (b) formation of opinion by the Commissioner that provisional attachment is necessary to protect government revenue, followed by a written order. Rule 159 mandates that the Commissioner pass the order in FORM GST DRC-22 and provides for filing of objection within seven days and grant of hearing, and that provisional attachment is temporary and subject to review and release, including prior to the one-year limit. The Court observed that certain frozen accounts (those solely in the wife's name and joint accounts with wife and minor son) prima facie did not belong to other taxable persons and there were no allegations that these accounts held proceeds of the petitioner's taxable transactions; provisional attachment of such accounts would not be justified. Balancing the revenue interest and the taxpayer's ability to carry on business, the Court directed immediate unfreezing of the sole account in the wife's name and conditional partial unfreezing of specified joint accounts subject to a 50% debit freeze, while preserving the respondents' power to proceed in accordance with rule 159 after hearing any objection. [Paras 16, 17, 19, 21, 25]Sole account in the wife's name shall be unfrozen forthwith; specified joint accounts shall be unfrozen subject to a 50% debit freeze; the petitioner may file objections and be heard under rule 159.Suspension or cancellation of Importer-Exporter Code under the Foreign Trade (Development and Regulation) Act, 1992 - competence of Director General of Foreign Trade to suspend/cancel IEC - Validity of 'blocking' the petitioner's Importer-Exporter Code (IEC) by the respondents and the proper statutory mechanism for suspension or cancellation of IEC. - HELD THAT: - The Court examined section 8 of the Foreign Trade (Development and Regulation) Act, 1992 and held that suspension or cancellation of an IEC can be effected only by the Director General of Foreign Trade or an officer authorised by him, after notice and opportunity of representation/hearing. There is no provision for 'blocking' of IEC by other authorities. The respondents are not the DGFT or an authorised officer and, prima facie, lack jurisdiction to block the IEC. The respondents did not comment on the alleged blocking in their affidavit. Consequently, any blocking by the respondents would be unauthorised and without jurisdiction. [Paras 23, 24, 25]Blockage of the petitioner's importer-exporter code by respondent No.3 or any other unauthorized authority shall be withdrawn forthwith.Objection and hearing against provisional attachment - provisional attachment under section 83 of the CGST Act - Form GST DRC-22 and rule 159 of the CGST Rules - Further consideration of provisional attachment of the remaining bank accounts and the procedure to be followed by the authorities. - HELD THAT: - The Court granted the petitioner liberty to file objections within seven days against attachment of the other bank accounts. On filing of such objection, the Principal Additional Director General of GST Intelligence must afford an opportunity of hearing and pass an appropriate order in accordance with law within three weeks from the date of filing. This directs the competent authority to consider the attachments afresh in compliance with rule 159 and section 83, including providing hearing and reasoned orders. [Paras 21, 25]Petitioner may file objection within seven days; Principal Additional Director General shall hear and decide the objection within three weeks.Final Conclusion: The Court upheld the procedural safeguards inherent in provisional attachment under section 83 and rule 159, directed immediate relief by unfreezing certain family and joint accounts subject to conditions, ordered withdrawal of any unauthorised blocking of the petitioner's IEC, and directed the competent authority to entertain and decide objections to other attachments after hearing within a stipulated timeline. Issues Involved:1. Coercive measures without show cause notice.2. Freezing of bank accounts.3. Blocking of Importer Exporter Code.4. Presence of a lawyer during investigation.Detailed Analysis:Coercive Measures Without Show Cause NoticeThe petitioner sought a direction to restrain the respondents from adopting coercive measures without issuing a show cause notice to compel the petitioner to pay further customs duty and/or GST dues. The court examined Section 83 of the CGST Act, 2017, which allows provisional attachment of property to protect government revenue during the pendency of certain proceedings. The court noted that there are two preconditions for the Commissioner to exercise jurisdiction under Section 83: (1) pendency of proceedings under specified sections of the CGST Act, and (2) the Commissioner's opinion that provisional attachment is necessary to protect government revenue. The court found that the garnishee notice issued to the petitioner's bank mentioned proceedings under Sections 67 and 74 of the CGST Act, but the manner in which these proceedings were launched was not clear.Freezing of Bank AccountsThe petitioner requested the unfreezing of 12 bank accounts. The respondents argued that the provisional attachment was necessary to protect government revenue, citing the investigation which suggested that the petitioner had indulged in fraudulent activities, including the utilization of fake input tax credit (ITC) and claiming fraudulent IGST refunds. The court examined Rule 159 of the CGST Rules, which outlines the procedure for provisional attachment of property. The court emphasized that provisional attachment is a serious measure and should not be used punitively. It also noted that the attachment must be periodically reviewed and can be contested by the affected party. The court found that some of the attached accounts were in the names of individuals who were not the taxable persons and had no allegations against them, making the attachment of these accounts unjustified.Blocking of Importer Exporter CodeThe petitioner sought the unblocking of their Importer Exporter Code. The court referred to the Foreign Trade (Development and Regulation) Act, 1992, which governs the issuance, suspension, and cancellation of Importer Exporter Codes. The court noted that only the Director General of Foreign Trade or an authorized officer can suspend or cancel an Importer Exporter Code, and this must be done following due process, including providing a notice and an opportunity for a hearing. The court found that the respondents were neither the Director General of Foreign Trade nor authorized officers and thus had no jurisdiction to block the petitioner's Importer Exporter Code.Presence of a Lawyer During InvestigationThe petitioner also sought permission to have a lawyer present during their investigation. The court did not provide a detailed analysis or ruling on this issue within the provided text.Interim Orders:1. The bank account solely in the name of Ms. Mansi Siddharth Mandavia to be unfrozen immediately.2. Joint accounts in the names of the petitioner and either Mansi Mandavia or Hriaan Siddharth Mandavia to be unfrozen, with a debit freeze on 50% of the amounts.3. The petitioner may file an objection regarding other accounts within 7 days, and the Principal Additional Director General must decide on the objection within 3 weeks.4. The blockage of the petitioner's Importer Exporter Code by the respondents to be withdrawn immediately.Conclusion:The court provided significant relief to the petitioner by ordering the unfreezing of certain bank accounts and the withdrawal of the blockage of the Importer Exporter Code. It also allowed the petitioner to contest the provisional attachment of other accounts, ensuring that the respondents' actions were subject to judicial scrutiny and due process.