2021 (2) TMI 392 - HC - GST

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. ... Provisional attachment to protect government revenue under Section 83 - Duration limit of provisional attachment under Section 83(2) - Fresh provisional attachment after expiry of one year - Statutory objections under Rule 159(5) of the CGST Rules - Release of third party/beneficial share from attached joint/escrow accountProvisional attachment to protect government revenue under Section 83 - Release of third party/beneficial share from attached joint/escrow account - Statutory objections under Rule 159(5) of the CGST Rules - Whether the provisional attachment of the joint escrow account could be continued so as to withhold petitioner No.1's 97% share, and what interim relief was permissible pending disposal of statutory objections. - HELD THAT: - The court found that the provisional attachment was effected in proceedings initiated against respondent No.3, whereas petitioner No.1 is not the taxable person and no proceedings under the specified provisions of the CGST Act have been initiated or contemplated against petitioner No.1. The contractual arrangement and standing instructions showed that receipts in the escrow account were apportioned 3% to respondent No.3 and 97% to petitioner No.1, and petitioners were adversely affected by the attachment made in the course of action against respondent No.3. Petitioners had filed objections under Rule 159(5) to the fresh provisional attachment order dated 22.09.2020. In these circumstances the court directed interim relief: it lifted the provisional attachment insofar as it affected petitioner No.1's share and allowed respondent No.4 bank to remit the proportionate amount to petitioner No.1 subject to petitioner No.1 maintaining a credit balance of Rs. 5,00,000 in the escrow account. The court further directed respondent No.2 to treat the objections as validly filed under Rule 159(5) and to hear and decide them in accordance with law; the interim release was made subject to the outcome of that decision. The continuing attachment over respondent No.3's 3% share was left intact. [Paras 15, 18, 20, 21]Provisional attachment lifted as to petitioner No.1's 97% share subject to maintaining Rs. 5,00,000 in the escrow account; respondent No.2 to hear and decide the Rule 159(5) objections; respondent No.3's 3% share to remain attached.Duration limit of provisional attachment under Section 83(2) - Fresh provisional attachment after expiry of one year - Whether the authority could issue a fresh provisional attachment after expiry of one year from the earlier order under Section 83(2). - HELD THAT: - The court noted that every provisional attachment under Section 83(1) ceases after one year under Section 83(2). It observed that there is no provision prohibiting the authority from issuing a fresh provisional attachment upon expiry of the one year period if the appropriate officer is of the opinion such further attachment is necessary to protect government revenue and subject to compliance with statutory requirements. The fresh provisional attachment dated 22.09.2020 was therefore recognised as having been issued following expiry of the earlier order. [Paras 5, 16]A fresh provisional attachment after expiry of the initial one year period is permissible if the authority, in terms of the statute, is satisfied of the need to protect government revenue and complies with the statutory procedure.Final Conclusion: Writ petition disposed: interim release ordered of petitioner No.1's 97% share from the joint escrow account subject to maintaining a Rs. 5,00,000 balance and subject to the result of objections filed under Rule 159(5); the 3% share of respondent No.3 to remain attached; respondent No.2 directed to hear and decide the objections; no order as to costs. 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.