2021 (4) TMI 837 - SC - GST

Joint Commissioner violated natural justice by denying adequate hearing before provisional attachment under Section 83 HPGST Act

M/s Radha Krishan Industries Versus State of Himachal Pradesh & Ors.

The SC held that the HC erred in declining to entertain a writ petition challenging provisional attachment under Section 83 of HPGST Act. The Joint ... Maintainability of writ petition before the High Court - Provisional attachment - Section 83 of the HPGST Act - valid exercise of power or not - Delegation of Authority under CGST Act - expression ‘adjudicating authority’ - HELD THAT:- it is evident that the expression ‘adjudicating authority’ does not include among other authorities, the Commissioner. In the present case, the narration of facts indicates that on 21 October 2020, the Commissioner had in exercise of his powers under Section 5(3) made a delegation inter alia to the Joint Commissioner of State Taxes and Excise in respect of the powers vested under Section 83(1). The Joint Commissioner, in other words, was exercising the powers which are vested in the Commissioner under Section 83(1) to order a provisional attachment in pursuance of the delegation exercised on 21 October 2020. This being the position, clearly the order passed by the Joint Commissioner as a delegate of the Commissioner was not subject to an appeal under Section 107(1) and the only remedy that was available was in the form of the invocation of the writ jurisdiction under Article 226 of the Constitution. The High Court was, therefore, clearly in error in declining to entertain the writ proceedings. The entire procedure which has been followed by the Joint Commissioner in the present case is contrary to the provisions contained in Section 83 read with Rule 159. The Joint Commissioner (acting on behalf of the Commissioner) has proceeded on an understanding that an opportunity of being heard to the person whose property is provisionally attached is a matter of discretion, the discretion of being that of the Commissioner. The Commissioner's understanding that an opportunity of being heard was at the discretion of the Commissioner is therefore flawed and contrary to the provisions of Rule 159(5). There has, hence, been a fundamental breach of the principles of natural justice. We are unable to accept the contention of the respondent that merely because proceedings were pending/concluded against another taxable entity, that is GM Powertech, the powers of Sections 83 could also be attracted against the appellant. This interpretation would be an expansion of a draconian power such as that contained in Section 83, which must necessarily be interpreted restrictively. Given that there were no pending proceedings against the appellant, the mere fact that proceedings under Section 74 had concluded against GM Powertech, would not satisfy the requirements of Section 83. Thus, the order of provisional attachment was ultra vires Section 83 of the Act. The writ petition filed by the appellant under Article 226 of the Constitution shall stand allowed by setting aside the orders of provisional attachment dated 28 October 2020. Issues Involved:1. Maintainability of the writ petition before the High Court.2. Challenge on merits: improper invocation of Section 83 of the HPGST Act.3. Provisional Attachment.4. Delegation of authority under CGST Act.Detailed Analysis:Maintainability of the Writ Petition before the High Court:The High Court dismissed the writ petition on the ground that an alternative remedy was available under Section 107 of the HPGST Act. However, the Supreme Court noted that the writ petition was maintainable under Article 226 of the Constitution. The Court emphasized that the power under Article 226 is plenary and not limited by any other provision of the Constitution. It can be exercised not only for the enforcement of fundamental rights but also for any other purpose. The Court referred to the principles outlined in Whirlpool Corporation v Registrar of Trademarks, Mumbai, which allows for the exercise of writ jurisdiction in cases where there is a violation of fundamental rights, principles of natural justice, or where the order is wholly without jurisdiction. The Court concluded that the High Court erred in dismissing the writ petition on the ground of maintainability.Challenge on Merits: Improper Invocation of Section 83:The Court analyzed the conditions under Section 83 of the HPGST Act, which allows for provisional attachment to protect the revenue. The power to order a provisional attachment is drastic and must be exercised with extreme care and caution. The Commissioner must form an opinion based on tangible material that the attachment is necessary to protect the revenue. The Court found that the Joint Commissioner failed to show any material indicating that the appellant was a 'fly by night operator' or was disposing of assets to defeat the collection of tax. The provisional attachment was ordered before the proceedings under Section 74 were initiated against the appellant, rendering the attachment without jurisdiction and in violation of Section 83.Provisional Attachment:The Court emphasized that the power of provisional attachment under Section 83 is draconian and must be exercised strictly in accordance with the statutory conditions. The formation of an opinion by the Commissioner must be based on tangible material that indicates a live link to the necessity of ordering a provisional attachment to protect the revenue. The Court found that the Joint Commissioner's order lacked any basis for the formation of the opinion that the attachment was necessary. The Court also highlighted the procedural safeguards under Rule 159(5), which require the Commissioner to provide an opportunity of being heard to the person whose property is attached. The Joint Commissioner failed to comply with these procedural safeguards, rendering the provisional attachment illegal.Delegation of Authority under CGST Act:The Court examined the delegation of powers by the Commissioner to the Joint Commissioner under Section 5(3) of the HPGST Act. The delegation was challenged on the ground that it was contrary to the provisions of the Act. The Court referred to the decision in Nathanlal Maganlal Chauhan v State of Gujarat, which upheld the delegation of powers under similar circumstances. The Court concluded that the delegation of powers to the Joint Commissioner was valid and in accordance with the provisions of the HPGST Act.Summary of Findings:1. The writ petition before the High Court under Article 226 of the Constitution challenging the order of provisional attachment was maintainable.2. The High Court erred in dismissing the writ petition on the ground that it was not maintainable.3. The power to order a provisional attachment of the property of the taxable person, including a bank account, is draconian in nature and must be strictly fulfilled.4. The exercise of the power for ordering a provisional attachment must be preceded by the formation of an opinion by the Commissioner that it is necessary to protect the interest of the government revenue.5. The formation of the opinion by the Commissioner must be based on tangible material bearing on the necessity of ordering a provisional attachment.6. In the present case, there was a clear non-application of mind by the Joint Commissioner to the provisions of Section 83, rendering the provisional attachment illegal.7. The person whose property is attached is entitled to dual procedural safeguards: an entitlement to submit objections and an opportunity of being heard.8. There has been a breach of the mandatory requirement of Rule 159(5) as the Commissioner failed to provide an opportunity of being heard.9. A final order having been passed under Section 74(9), the proceedings under Section 74 are no longer pending, and the provisional attachment must come to an end.10. The appellant, having filed an appeal against the order under Section 74(9), is entitled to the provisions of sub-Sections 6 and 7 of Section 107 regarding the payment of tax and stay on the recovery of the balance pending the disposal of the appeal.The Supreme Court allowed the appeal, set aside the impugned judgment of the High Court, and quashed the orders of provisional attachment dated 28 October 2020.