2023 (3) TMI 625 - HC - GST

Third-Party Payment Blockade Under GST Section 70(1) Ruled Invalid: Jurisdictional Limits Protect Taxpayer Financial Interactions

HC determined that a notice under GST Act Section 70(1) cannot direct a third party to stop payments to an assessee. The court found the payment stoppage ... Power to summon for inquiry under Section 70(1) of the GST Act - jurisdictional limit of summoning powers - ultra vires direction to third parties to stop payments - provisional attachment to protect Government revenue under Section 83 of the GST ActPower to summon for inquiry under Section 70(1) of the GST Act - ultra vires direction to third parties to stop payments - Validity of a direction contained in a notice issued under Section 70(1) of the GST Act directing a third party to stop further payments to the assessee - HELD THAT: - The Court held that Section 70(1) confers only the power on the proper officer to summon any person whose attendance is necessary for giving evidence or producing documents in an inquiry and does not empower the officer to direct a third party to stop payments due to the assessee. The impugned notice was issued under Section 70(1) and not under Section 83; while Section 83 permits provisional attachment of property or bank accounts to protect government revenue, that power was not invoked. Consequently the direction in the notice requesting the third party to stop further payments exceeded the jurisdiction available under Section 70(1) and was ultra vires and liable to be set aside, while the remainder of the notice under Section 70(1) may be acted upon in accordance with law. [Paras 5, 6]The portion of the notice under Section 70(1) directing Sterlight Technologies Limited to stop further payments to the petitioner was set aside; the 3rd respondent may proceed in accordance with law in respect of other parts of the notice.Final Conclusion: Writ petition allowed to the extent of deleting the direction in the Section 70(1) notice that instructed the third party to stop further payments; liberty granted to the revenue to proceed by invoking appropriate provisions such as Section 83 if warranted. Issues: Challenge to notice under Section 70(1) of GST ActAnalysis:The writ petition challenged a notice issued under Section 70(1) of the GST Act to a company, which was a customer of the petitioner. The petitioner contended that the notice contained a direction for the customer to stop all further payments to the petitioner, which was beyond the jurisdiction of the issuing authority.Legal Arguments:The petitioner's counsel argued that while Section 70(1) of the GST Act empowers the proper officer to summon individuals for evidence or document production, it does not authorize directing a party to stop payments. On the other hand, the Government Pleader acknowledged that the officer issuing the notice may not have the power to stop payments under Section 70(1) but argued that such power exists under Section 83 of the GST Act, which deals with provisional attachment of property or bank accounts.Judgment:The High Court held that the impugned notice was issued under Section 70(1) of the GST Act and not under Section 83. Section 70(1) specifically grants the power to summon individuals for evidence or document production and nothing more. The Court emphasized that under Section 70(1), the officer cannot direct a party to stop payments to the assessee. The Court clarified that the power to stop payments exists under Section 83 for protecting government revenue, but since the notice was issued under Section 70(1), the direction to stop payments was beyond the officer's jurisdiction.Decision:Consequently, the Court allowed the writ petition, setting aside the portion of the notice directing the customer to stop payments to the petitioner. The Court granted liberty to the officer to proceed in accordance with the law regarding the other parts of the notice issued under Section 70(1) of the GST Act. No costs were awarded, and any pending interlocutory applications were closed as a result of the judgment.