Provisional attachment of properties upheld despite one-year expiry as section 74 adjudication proceedings commenced

Gujarat HC disposed petition challenging provisional attachment of properties and bank accounts for wrongful Input Tax Credit availment. The court declined to examine the competent authority's power to issue second provisional attachment order after one year's expiry, noting that show cause notice under section 74 had commenced adjudication proceedings. The court directed authorities to complete time-bound adjudication proceedings, stating that once concluded, parties' rights would crystallize and determine the provisional attachment order's fate. Petitioner's GSTIN registration cancellation and input tax credit blocking were not specifically addressed on merits.

---

---

Issues Involved:
1. Wrongful availment of Input Tax Credit (ITC).
2. Provisional attachment orders under Section 83 of the GST Act.
3. Cancellation of GST registration.
4. Adjudication proceedings and show cause notices.

Summary:

Issue 1: Wrongful Availment of Input Tax Credit (ITC)
The petitioner company, engaged in the business of copper and copper scrap, faced allegations of wrongful availment of ITC from 2017-2018 to 2021-2022. The GST authorities found that the company made fake purchases from 39 fictitious firms amounting to Rs. 770.64 crores, resulting in wrongful ITC of Rs. 138.71 crores.

Issue 2: Provisional Attachment Orders under Section 83 of the GST Act
A provisional attachment order dated 26.7.2021 was passed against the petitioner, covering properties and bank accounts. This order was challenged in Special Civil Application No. 2776 of 2022. An interim order dated 4.5.2022 regulated the rights and obligations between the petitioner and the GST authorities, including specific directions to protect the interests of the Bank.

Section 83(2) of the GST Act states that such provisional attachments cease after one year. The first attachment order expired on 25.7.2022. Before this date, a second provisional attachment order dated 8.7.2022 was issued, which was challenged in Special Civil Application No. 17881 of 2022. The petitioner contended that Section 83 does not allow for repeated provisional attachments beyond one year.

Issue 3: Cancellation of GST Registration
The petitioner's GST registration was cancelled due to the allegations. The petitioner filed an appeal against this cancellation and expressed willingness to pay the admitted tax liability. The court directed that upon payment of the admitted tax liability, the appellate authority would set aside the cancellation, allowing the petitioner to file returns for the previous years.

Issue 4: Adjudication Proceedings and Show Cause Notices
The GST authorities issued a show cause notice dated 31.3.2023 for all five financial years in question. The court directed the authorities to complete the adjudication proceedings within six weeks from the date of receipt of the petitioner's reply. The legality of the second provisional attachment order was not addressed, as the adjudication proceedings would determine the outcome.

Additional Directions:
The court maintained the interim arrangement from the order dated 4.5.2022 to protect the financial interests of the Bank until the adjudication proceedings were completed. Special Civil Application No. 2776 of 2022 was withdrawn by the petitioner, and both petitions were disposed of with interim relief vacated, except for the continued arrangement.

Conclusion:
The court directed the competent GST authorities to proceed with adjudication in a time-bound manner, ensuring reasonable opportunity for the petitioner to defend its case. The order was passed without prejudice to the contentions of either party in future proceedings.

---