2021 (1) TMI 795 - HC - GST

Court Quashes Provisional Attachment Order, Emphasizes Judicious Power Exercise

The court allowed the writ application, quashing the impugned order of provisional attachment of the bank accounts under Section 83 of the CGST Act. The ... Provisional attachment under Section 83 - subjective satisfaction based on credible material - necessity to protect interest of revenue - provisional attachment as a drastic, last-resort measure - prohibition of mechanical or casual exercise of attachment powersProvisional attachment under Section 83 - provisional attachment of bank accounts - Validity of the provisional attachment of the writ-applicant's current and savings bank accounts by order in FORM GST DRC-22. - HELD THAT: - The Court examined whether the provisional attachment of the two bank accounts ought to continue. Having regard to the statutory purpose of Section 83, the prescribed form (FORM GST DRC-22) and the factual material on record, the Court concluded that continuation of attachment served no useful purpose where the combined balance in the two accounts was negligible. The Court took a practical view that provisional attachment is intended to protect the revenue against loss of assets that would frustrate recovery after assessment; attaching accounts which held only a paltry sum would not meaningfully protect revenue but would cause undue hardship to the assessee. In that factual matrix the Court found no justification to continue the provisional attachment and, accordingly, quashed and set aside the impugned order insofar as it attached those two accounts, while preserving the Department's right to proceed with investigation and subsequent steps in accordance with law. [Paras 42, 43, 50, 51, 52]The provisional attachment of the two bank accounts is quashed and set aside and the writ-application is allowed; the order has no bearing on further proceedings the authority may initiate in accordance with law.Subjective satisfaction based on credible material - necessity to protect interest of revenue - provisional attachment as a drastic, last-resort measure - prohibition of mechanical or casual exercise of attachment powers - Legal standards governing exercise of power under Section 83 and the limits of judicial scrutiny over the authority's opinion. - HELD THAT: - The Court reiterated that Section 83 permits provisional attachment during the pendency of specified proceedings, but the requisite 'opinion' of the Commissioner must be founded on credible material and a bona fide satisfaction that attachment is necessary to protect revenue. Though subjective, that opinion is not immune from limited scrutiny: there must be a rational connection between the material relied upon and the satisfaction formed, and the power is to be used sparingly as a last resort. The Court emphasised that attachment cannot be a mechanical consequence of initiation of proceedings under Section 67 and condemned routine, casual or mechanical exercise of Section 83 which dilutes its efficacy. The Court relied on earlier coordinates (including Valerius Industries and other authorities) to state that absence of cogent material or use of the power for extraneous or oppressive purposes would render attachment malafide or arbitrary in law. [Paras 39, 40, 41, 44, 53]Section 83 confers a drastic power which must be exercised only after due application of mind on credible materials; routine or mechanical attachment is impermissible and subject to judicial review for absence of relevant material or malafide exercise.Final Conclusion: The writ succeeds: the provisional attachment of the two bank accounts is quashed and set aside as unnecessary in the facts of this case; the Court reiterated that Section 83 is a drastic power to be exercised sparingly, on credible material and not as a mechanical consequence of proceedings, without prejudice to the authority's right to continue investigation and take lawful steps thereafter. Issues Involved:1. Legality and validity of the provisional attachment of bank accounts under Section 83 of the CGST Act.2. Pendency of proceedings under Section 67 of the CGST Act at the time of provisional attachment.3. Adequacy and application of mind in forming the opinion for provisional attachment.4. Hardship caused to the petitioner due to the provisional attachment.Detailed Analysis:Legality and Validity of Provisional Attachment:The petitioner challenged the legality and validity of the order of provisional attachment of bank accounts under Section 83 of the CGST Act. The court noted that the power under Section 83 is drastic and should be exercised with care and circumspection. The court emphasized that the subjective satisfaction required for provisional attachment must be based on credible material and should not be arbitrary or capricious. The court referred to its earlier decisions, highlighting that the power of provisional attachment should be used sparingly and only on substantive grounds. The court concluded that the provisional attachment in this case was not justified as it did not meet the necessary criteria for protecting the interest of the Revenue.Pendency of Proceedings under Section 67:The petitioner argued that no proceedings were pending under Section 67 of the CGST Act at the time of the provisional attachment. The court referred to the decision in Kushal Ltd. vs. Union of India, where it was held that the sine qua non for exercising powers under Section 83 is the pendency of proceedings under specific sections, including Section 67. The court noted that the Supreme Court had kept the view expressed in Kushal Ltd. in abeyance, pending a final decision. Therefore, the court refrained from delving into the argument regarding the pendency of proceedings under Section 67.Adequacy and Application of Mind:The petitioner contended that the impugned orders were cryptic and lacked application of mind. The court emphasized that the formation of opinion for provisional attachment must be based on relevant material and should reflect an intense application of mind. The court found that the impugned orders did not demonstrate any such application of mind and were arbitrary. The court reiterated that the power under Section 83 should be exercised only if there is a reasonable apprehension that the assessee may default on the ultimate collection of the demand.Hardship Caused to the Petitioner:The petitioner highlighted the hardship caused due to the provisional attachment of his bank accounts, which affected his ability to conduct business and file income tax returns. The court acknowledged the undue hardship and noted that the balance in the attached bank accounts was minimal. The court emphasized that the power of provisional attachment should not be used to harass the assessee or have an irreversible detrimental effect on the business. The court concluded that the provisional attachment of the bank accounts with a paltry balance served no good purpose and caused undue hardship to the petitioner.Conclusion:The court allowed the writ application, quashing the impugned order of provisional attachment of the bank accounts. The court directed the respondents to lift the provisional attachment and permit the petitioner to operate the bank accounts. The court also highlighted the need for guidelines to ensure that the power under Section 83 is exercised judiciously and not mechanically. The court requested the Union of India and the CBDT to consider issuing appropriate instructions or guidelines to prevent the mechanical exercise of power under Section 83, which leads to unnecessary litigation.