2023 (2) TMI 322 - HC - GST

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 ... Provisional attachment under section 83 - protection of government revenue as a prerequisite for attachment - requirement of recorded opinion and due application of mind before attachment - CBEC guidelines on provisional attachment (23.02.2021) - FORM GST DRC-22 and FORM DRC-01A procedural compliance - extraordinary nature of attachment and need to avoid hampering normal businessProvisional attachment under section 83 - requirement of recorded opinion and due application of mind before attachment - CBEC guidelines on provisional attachment (23.02.2021) - Validity of the order provisionally attaching the petitioner's bank account under section 83 of the Gujarat GST Act, 2017 - HELD THAT: - The Court found that provisional attachment under section 83 is a draconian and extraordinary power which must be exercised sparingly and only after formation of a recorded opinion based on tangible material that attachment is necessary to protect revenue. The CBEC guidelines dated 23.02.2021 prescribe that the basis for such opinion be recorded, the attachment not be routine or mechanical, and care be taken so that normal business activities are not hampered. In the present case the authority attached the petitioner's bank account without following the prescribed procedure (including issuance of FORM DRC-01A before attachment), and the material on record did not show the requisite application of mind and recorded reasoning as mandated by the statute and the guidelines. In view of these deficiencies and the established jurisprudence requiring strict compliance with statutory conditions for valid attachment, the provisional attachment order was held to be unsustainable and was quashed and set aside. [Paras 7, 9]Order of provisional attachment of the petitioner's bank account dated 18.05.2022 under section 83 is quashed and set aside.Extraordinary nature of attachment and need to avoid hampering normal business - FORM GST DRC-22 and FORM DRC-01A procedural compliance - protection of government revenue as a prerequisite for attachment - Consequent relief and interim directions regarding release of the bank account and protection of specific tax amounts pertaining to the relevant tax periods - HELD THAT: - Balancing the interest of revenue with the hardship caused to the petitioner, the Court directed release of the bank account while safeguarding the Government revenue in respect of identified tax liabilities for the tax periods concerned. The Court declined to consider computation of interest and penalty at this stage because the procedural requirements for attachment had not been followed; it preserved the respondent's right to proceed in accordance with law. The Bank was directed to permit operation of the account except that specified sums linked to the tax periods 2018-19 and 2019-20 were not to be released pending crystallization of liability or appellate orders; for other amounts the petitioner was directed to furnish a bond as security before the authority. [Paras 9, 11, 12]Bank account released subject to restraint that the Bank shall not permit withdrawal of specified tax amounts for 2018-19 and 2019-20; remaining recovery to be secured by bond and authority may proceed in accordance with law.Final Conclusion: Writ petition allowed in part: the provisional attachment of the petitioner's bank account dated 18.05.2022 is quashed and set aside for failure to comply with statutory conditions and CBEC guidelines; the bank account is released subject to reservation of specified tax amounts for 2018-19 and 2019-20 and without prejudice to the respondent authority's lawful recourse after following prescribed procedure. 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.