Court lifts attachment on majority share in escrow account, directs consideration of objections.

The court lifted the provisional attachment on Petitioner No.1's 97% share in the escrow account, subject to maintaining a balance of Rs. 5,00,000. Respondent No.2 was directed to consider and decide the petitioners' objections. The remaining 3% share of Respondent No.3 remained attached. No costs were awarded.

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Issues Involved:
1. Legality of the provisional attachment orders dated 27.09.2019 and 22.09.2020.
2. Petitioners' entitlement to 97% of the escrow account funds.
3. Respondent No.2's authority to attach the escrow account.
4. Petitioners' statutory objections under Rule 159(5) of the CGST Rules.
5. Impact of proceedings against Respondent No.3 on Petitioners.

Detailed Analysis:

1. Legality of the Provisional Attachment Orders:
The petitioners challenged the provisional attachment orders dated 27.09.2019 and 22.09.2020 issued by Respondent No.2, which attached the escrow account held jointly by Petitioner No.1 and Respondent No.3. The first order dated 27.09.2019 automatically expired after one year under Section 83(2) of the CGST Act, leading to the issuance of a fresh order dated 22.09.2020 during the pendency of the writ petition. The court noted that the attachment was due to proceedings initiated against Respondent No.3 under Section 74 of the CGST Act.

2. Petitioners' Entitlement to 97% of the Escrow Account Funds:
Petitioner No.1, a contractor, was entitled to 97% of the funds in the escrow account based on a Sub Contract Agreement and MOU with Respondent No.3. The court acknowledged that MSPGCL credited the funds into the escrow account, and the agreed proportion was 3% to Respondent No.3 and 97% to Petitioner No.1. The court found that the provisional attachment affected Petitioner No.1's share, despite no proceedings being initiated against them under the CGST Act.

3. Respondent No.2's Authority to Attach the Escrow Account:
Respondent No.2 justified the attachment under Section 83 of the CGST Act to protect government revenue due to proceedings against Respondent No.3. However, the court highlighted that the escrow account had standing instructions to remit 97% of the funds to Petitioner No.1, and only 3% belonged to Respondent No.3. The court found that the attachment of Petitioner No.1's share was arbitrary and unjustified since no proceedings were initiated against them.

4. Petitioners' Statutory Objections under Rule 159(5) of the CGST Rules:
Petitioners filed objections to the fresh provisional attachment order dated 22.09.2020, which were not decided by Respondent No.2. The court directed Respondent No.2 to consider and decide the objections in accordance with the CGST Act and Rules. The court also noted that the petitioners were not served with the attachment orders and learned about them from the bank.

5. Impact of Proceedings Against Respondent No.3 on Petitioners:
The court recognized that the petitioners were adversely affected by the actions taken against Respondent No.3. Since Petitioner No.1 was not the taxable person and no inquiry was initiated against them, the court found that their legitimate grievance needed redressal. The court directed that Petitioner No.1 should maintain a balance of Rs. 5,00,000 in the escrow account and allowed the release of the remaining funds to Petitioner No.1, subject to the outcome of the decision on their objections.

Conclusion:
The court disposed of the writ petition by lifting the provisional attachment on Petitioner No.1's share in the escrow account, subject to maintaining a balance of Rs. 5,00,000. The court directed Respondent No.2 to consider the petitioners' objections and decide them in accordance with the law. The remaining 3% share belonging to Respondent No.3 would continue to remain attached. No order as to costs was made.

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