2023 (5) TMI 849 - HC - GST

Bank account attachment for alleged fake ITC via 'dummy' company u/s83 CGST quashed for lack of basis

Provisional attachment of a company's bank accounts under s.83 CGST was challenged where the authorities alleged it was a dummy entity facilitating ... Provisional attachment of petitioner's Bank Accounts - fraudulent transfer of Input Tax Credit (ITC) - it was alleged that the petitioner company was created as a dummy company of M/s Best Crop Science Pvt. Ltd. for availing ITC by fraudulent means - HELD THAT:- It is relevant to note that the opening sentence of Section 122(1) of the CGST Act also refers to a taxable person. Thus, the assets of a person falling under Sub-section (1A) of Section 122 of the CGST Act can be attached only by a Commissioner who exercises jurisdiction in respect of the said taxable person - Sub-section (1A) of Section 122 of the CGST Act is applicable to any person who retains the benefit of the transaction covered under Clauses (i), (ii), (vii) and (ix) of Section 122(1) of the CGST Act and at whose instance such transaction is conducted. There is no allegation that the petitioner has retained the benefit of any of the alleged transactions covered under any of the specified clauses of Section 122(1) of the CGST Act. On the contrary, the allegation is that the petitioner has facilitated M/s Best Crop Science LLP / M/s Best Crop Science Pvt. Ltd. to avail fraudulent ITC. More importantly, there is no allegation that any of the allegedly offending transactions were conducted at the instance of the petitioner. On the contrary, it is alleged that the petitioner company was set up by the promoters of M/s Best Crop Science Pvt. Ltd. for availing fraudulent ITC - The impugned order is, thus, liable to be set aside on this ground alone. The second reason that the petitioner is a dummy company because the director of the petitioner is/was an employee of M/s Best Crop Group is also somewhat in the realm of assumptions. The petitioner had stated that Shri Raman Kumar was employed by M/s Best Crop Group but he had since moved on and had taken up his role as a director of the petitioner company - there must be a live nexus between the reasons for provisionally attaching assets and bank accounts and the material available with the Commissioner. Merely because there was some material (although disputed) to indicate that one of the directors of the petitioner was an employee of another company cannot be the basis to believe that the petitioner company is a dummy company given the material as provided. The language of Section 83 of the CGST Act requires the Commissioner to form an opinion that it is necessary to attach the property of a taxable person. However, the said opinion is required to be based on relevant facts and not merely on grounds of suspicion. It is difficult to imagine that a company would survive if its bank accounts are frozen for a protracted period of time. Thus, the nature of the power makes it necessary that the same is exercised with due caution and only when it is necessary - Mere suspicion that the petitioner is a dummy company, which is founded on the basis of statements that one of the directors of the petitioner company was, or is an employee of M/s Best Agrolife Group, and is in complete disregard of the corporate documents of the petitioner, would clearly fall foul of the requirement of forming an opinion, as it does not meet the standards required for taking an action under Section 83 of the CGST Act. The attachment order is set aside. It is, however, clarified that the concerned authorities are not precluded from proceeding against the petitioner in accordance with law - petition disposed off. Issues Involved:1. Jurisdiction of the respondent to issue the attachment order.2. Validity of the attachment order based on its content and necessity.Summary:Jurisdiction of the Respondent:16. The primary issue is whether respondent no. 1 had the jurisdiction to pass the impugned order attaching the petitioner's bank account maintained with Punjab National Bank, Pitampura, Delhi. The petitioner's principal places of business are in Haryana and Uttar Pradesh, which do not fall under the territorial jurisdiction of respondent no. 1 (Principal Commissioner, CGST, Meerut).18. Mr. Harpreet Singh did not contest that respondent no. 1 lacks territorial jurisdiction over the petitioner but argued that the attachment was justified due to the petitioner's involvement in fraudulent ITC transactions with M/s Best Crop Science Pvt. Ltd., which was under investigation by respondent no. 1.24. The term 'the Commissioner' in Section 83 of the CGST Act refers to the Commissioner who exercises jurisdiction over the taxable person. Since respondent no. 1 does not have jurisdiction over the petitioner's principal places of business, he lacked the authority to pass the attachment order.26. The jurisdiction of respondent no. 1 is confined to taxable persons within its territorial limits or persons specified under Sub-section (1A) of Section 122 of the CGST Act. The attachment order is thus invalid as respondent no. 1 had no jurisdiction over the petitioner.Validity of the Attachment Order:30. The impugned order is liable to be set aside on the jurisdictional ground alone.31. Additionally, the attachment order must be based on the Commissioner's opinion that it is necessary to protect the interest of the Government and the Revenue, formed on credible material.32. The Supreme Court in Radha Krishan Industries v. State of Himachal Pradesh & Ors. emphasized that the power to order a provisional attachment is draconian and must be exercised based on tangible material.35. The attachment order did not indicate any reason for forming an opinion that the petitioner is likely to defeat any tax demand if the bank account is not attached.42. The principal reason for attaching the petitioner's bank account, the alleged parking of sale proceeds from M/s Best Agro Group's shares, lacked any tangible material and was based on unsubstantiated suspicion.44. The suspicion that the petitioner is a dummy company due to one of its directors being an employee of M/s Best Crop Group is also based on assumptions and not on concrete evidence.47. The opinion required under Section 83 of the CGST Act must be based on relevant facts, not mere suspicion. The attachment order fails to meet this standard.Conclusion:48. The attachment order is set aside. However, the authorities are not precluded from proceeding against the petitioner in accordance with the law.49. The petition is disposed of accordingly.