Revenue department's provisional bank account attachment quashed for failing to follow section 83 procedures and CBEC guidelines

Gujarat HC quashed provisional attachment of petitioner's bank account, finding the revenue department failed to follow proper procedures under section 83 and CBEC Circular guidelines before attachment. The court noted absence of required FORM DRC-01A issuance and lack of circumspection in using extraordinary remedy. However, considering inquiry against supplier and petitioner's purchases worth Rs.37,21,420, court directed partial release allowing bank to withhold specific tax amounts of Rs.3,95,568 (2018-19) and Rs.1,72,104 (2019-20) pending liability crystallization, with petitioner required to furnish bond for remaining penalty and interest amounts.

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Issues Involved:
1. Provisional attachment of the bank account under Section 83 of the Gujarat Goods and Services Tax Act, 2017.
2. Compliance with procedural requirements and guidelines for provisional attachment.
3. Validity of the attachment in light of the petitioner's business activities and the status of M/s. Arsh Enterprise.

Detailed Analysis:

1. Provisional Attachment of the Bank Account under Section 83 of the Gujarat Goods and Services Tax Act, 2017:
The petitioner challenged the provisional attachment of its bank account under Section 83 of the Gujarat Goods and Services Tax Act, 2017, issued by the respondent on 18.05.2022. The attachment was made due to alleged violations of the provisions of the Act. The petitioner argued that the attachment was an extreme measure and should be used only in exceptional circumstances. The respondent justified the attachment by citing the need to protect government revenue, as M/s. Arsh Enterprise, a supplier to the petitioner, was found to be involved in fraudulent activities, including wrongful availing and utilization of Input Tax Credit (ITC).

2. Compliance with Procedural Requirements and Guidelines for Provisional Attachment:
The court examined whether the respondent followed the procedural requirements and guidelines for provisional attachment as outlined in the CBEC Circular No. CBEC-20/16/05/2021-GST/359 dated 23.02.2021. The guidelines emphasize that the power of provisional attachment should be exercised with due diligence and not in a routine or mechanical manner. The court noted that the respondent had not issued FORM DRC-01A before the provisional attachment, which is a procedural requirement. The court also highlighted that the provisional attachment should not hamper the normal business activities of the taxable person.

3. Validity of the Attachment in Light of the Petitioner's Business Activities and the Status of M/s. Arsh Enterprise:
The court considered the petitioner's argument that the purchases from M/s. Arsh Enterprise were genuine and that the GST registration of M/s. Arsh Enterprise was valid at the time of purchase. The respondent's investigation revealed that M/s. Arsh Enterprise was involved in issuing bogus invoices without actual supply of goods and had availed ITC fraudulently. The court acknowledged the gravity of the matter but emphasized the need for the respondent to follow the prescribed procedures and guidelines.

Judgment:
The court quashed the order of provisional attachment dated 18.05.2022, noting that the respondent had not followed the necessary procedures and guidelines. The court directed the bank to release the petitioner's account but restricted the petitioner from operating the account for the tax amounts of Rs. 3,95,568/- for the year 2018-19 and Rs. 1,72,104/- for the year 2019-20. The court allowed the petitioner to furnish a bond for the remaining amount of penalty and interest. The court also permitted the respondent to proceed with the inquiry in accordance with the law.

Conclusion:
The court's decision underscores the importance of adhering to procedural requirements and guidelines when exercising the power of provisional attachment under Section 83 of the Gujarat Goods and Services Tax Act, 2017. The judgment balances the need to protect government revenue with the necessity of ensuring that such measures do not unduly hamper the business activities of the taxpayer.

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